The Unintended Consequences of Material Weakness Reporting on Auditors' Acceptance of Aggressive Client Reporting

• 成果类型: Article
• 署名作者: Bauer, Tim D.; Bucaro, Anthony C.; Estep, Cassandra
• 署名单位: University of Waterloo; University System of Ohio; Case Western Reserve University; Emory University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-52610
• 发表日期: 2020
• 页码: 51-72
• 关键词: CONFLICTS-OF-INTEREST; INTERNAL CONTROL; control deficiencies; IMPACT; RISK; misstatements; disposition; Consistency; Mindsets; BEHAVIOR

摘要

Regulators are concerned that auditors do not sufficiently identify and report material weaknesses in internal control over financial reporting (ICFR). However, psychological licensing theory suggests reporting material weaknesses could have unintended consequences for acceptance of aggressive client financial reporting. In an experiment, we predict and find auditors accept more aggressive client reporting after they report a material weakness in ICFR than after they report no material weakness. We provide evidence licensing underlies this effect. In a second experiment, we investigate the efficacy of an intervention to reduce the identified licensing effects by prompting an audit quality goal. We find this prompt mitigates the unintended consequence when auditors report a material weakness. While regulators are concerned companies are undeservedly receiving clean ICFR audit opinions, our findings indicate adverse ICFR opinions may lead auditors to give companies undeservedly clean financial statement opinions. We provide a potential remedy to this unintended consequence.