Judging audit quality in light of adverse outcomes: Evidence of outcome bias and reverse outcome bias

• 成果类型: Article; Proceedings Paper
• 署名作者: Peecher, Mark E.; Piercey, M. David
• 署名单位: University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; University of Massachusetts System; University of Massachusetts Amherst
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/car.25.1.10
• 发表日期: 2008
• 页码: 243-+
• 关键词: hindsight bias; juror evaluations; prospect-theory; i could; DECISION; judgments; KNOWLEDGE; conservatism; INFORMATION; experience

摘要

Considerable auditing research shows that individuals exhibit outcome effects when judging audit quality. They judge auditor negligence as more likely when given information about adverse audit outcomes. Many studies conclude that outcome information biases individuals against auditors, and/or attempt to improve their judgements by reducing outcome effects. Yet, individuals generally should judge auditors more harshly when given adverse outcomes. A key question is whether individuals' belief revision from adverse audit outcomes is too large (outcome bias), or too small (reverse outcome bias). We compare how individuals react to outcomes against how they should react to them (as a Bayesian judge), given their own prior beliefs. Combining outcome effects with prospect theory's probability weighting function, we predict that individuals' judgements of auditor negligence contain outcome bias when their own Bayesian probability of auditor negligence is relatively low, but also exhibit reverse outcome bias when their Bayesian probability of auditor negligence is relatively high. We find evidence of this in both rich and abstract settings, and in both hindsight and foresight. When individuals exhibit reverse outcome bias, it is harder to argue that the outcome information biased them against auditors, or that reducing outcome effects will improve their judgement quality. Our theory and findings suggest that the effect of adverse outcomes on judgements of auditor negligence is not as simple as once thought. The model for auditor negligence judgements should expand to include outcome bias and reverse outcome bias, where predicted by our combination of outcome effects and prospect theory.