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CONTENTS
LIST OF CONTRIBUTORS vii
REVIEWER ACKNOWLEDGMENTS ix
EDITORS COMMENTS xi
EDITORIAL POLICY AND SUBMISSION GUIDELINES xiii
PART I: ACCOUNTING BEHAVIORALRESEARCH
A STRUCTURAL EQUATION MODEL OF AUDITORS
PROFESSIONAL COMMITMENT: THE INFLUENCE OF
FIRM SIZE AND POLITICAL IDEOLOGY
John T. Sweeney, Jeffrey J. Quirin and Dann G. Fisher 3
AN ANALYSIS OF GROUP INFLUENCES ON GOING
CONCERN AUDITOR JUDGMENTS
Sunita S. Ahlawat and Timothy J. Fogarty 27
INVESTIGATING ERROR PROJECTION AMONG STATE
AUDITORS: THE IMPACT OF INTENTIONAL AND
SYSTEMATIC MISSTATEMENTS
John T. Reisch, Karen S. McKenzie and
Alan H. Friedberg 53
HOW DOES NEGATIVE SOURCE CREDIBILITY AFFECT
COMMERCIAL LENDERS DECISIONS?
Philip R. Beaulieu and Andrew J. Rosman 79
v
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vi
EARNINGS MANAGEMENT AND FRAMING: THE SPECIFIC
CASE OF OBSOLETE INVENTORYMarybeth M. Murphy and Joanne P. Healy 95
THE EFFECTS OF INCENTIVE STRUCTURE AND GOAL
DIFFICULTY ON TIME PLANNING DECISIONS WITHIN A
BALANCED SCORECARD FRAMEWORK
Brad Tuttle and Mark J. Ullrich 121
THE EFFECT OF FAIRNESS IN CONTRACTING ON THECREATION OF BUDGETARY SLACK
Theresa Libby 145
PART II: PERSPECTIVES ONRESEARCH PRODUCTIVITY
A TOBIT ANALYSIS OF ACCOUNTING FACULTY
PUBLISHING PRODUCTIVITY IN AUSTRALIAN AND NEW
ZEALAND UNIVERSITIES
Brett R. Wilkinson, Chris H. Durden and
Katherine J. Wilkinson 173
PART III: METHODOLOGICAL ISSUES IN BEHAVIORAL
RESEARCH
CLASSIFICATION OF CUSTOMIZED ASSURANCESERVICES BY DECISION MAKERS: THE CASE OF
SysTrust
Philip R. Beaulieu 189
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viii
John T. Sweeney School of Accounting, Information Systems
& Business Law, Washington StateUniversity, USA
Brad Tuttle Moore School of Business, University ofSouth Carolina, USA
Mark J. Ullrich(Deceased)
Graduate School of Business & Public Policy,Naval Post Graduate School, USA
Brett R. Wilkinson Hankamer School of Business, BaylorUniversity, USA
Katherine J. Wilkinson Rawls College of Business, Texas TechUniversity, USA
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REVIEWER ACKNOWLEDGMENTS
The Editor and Associate Editors at AABR would like to thank the many excellent
reviewers who have volunteered their time and expertise to make this an outstand-
ing publication. Publishing quality papers in a timely manner would not be possible
without their efforts.
Elizabeth Dreike AlmerPortland State University, USA
John C. Anderson
San Diego State University, USA
Philip R. Beaulieu
University of Calgary, Canada
Jean Bedard
Northeastern University, USAJames Bierstaker
University of Massachusetts, Boston,
USA
Dennis M. Bline
Bryant College, USA
Robert H. Chenhall
Monash University, Australia
Freddie Choo
San Francisco State University, USA
Christie L. Comunale
Long Island University C.W. Post
Campus, USA
Charles Cullinan
Bryant College, USA
Elizabeth DavisBaylor University, USA
Roger DebrecenyNanyang Technological University,
Singapore
William N. Dilla
Iowa State University, USA
Alan S. Dunk
University of Tasmania, Australia
Jennifer D. GoodwinUniversity of Queensland, Australia
Glen Gray
California State University,
Northridge, USA
Heather Hermanson
Kennesaw State University, USA
Mary Callahan Hill
Kennesaw State University, USA
Karen L. Hooks
Florida Atlantic University, USA
James E. Hunton
Bentley College, USA
Mike Kirschenheiter
Columbia University, USA
Stacy KovarKansas State University, USA
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EDITORS COMMENTS
Welcome to Volume 6 of Advances in Accounting Behavioral Research. This
issue contains an eclectic collection of behavioral research papers that examine
several very important issues. Several of the papers focus on various aspects
of auditors decisions such as professional commitment in public accounting
firms, mitigating bias via group decision making, and appropriately using sampleinformation to estimate errors in governmental auditing. The decisions of other
professionals that use accounting information such as commercial lenders and
divisional managers are also examined. Two papers examine how accounting
information impacts the behaviors of individuals within an organization under
various incentive structures. Two other papers provide perspectives on overall
research with one developing a classification scheme for new assurance services
and the other examining factors that impact research productivity of accounting
faculty members. Overall, this is a very enlightening group of papers that provide
insight into the behaviors of various users of accounting information.
Vicky Arnold
Editor
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EDITORIAL POLICY AND
SUBMISSION GUIDELINES
Advances in Accounting Behavioral Research(AABR) publishes articles encom-
passing all areas of accounting that incorporate theory from and contribute new
knowledge and understanding to the fields of applied psychology, sociology,
management science, and economics. The Research Annual is primarily devotedto original empirical investigations; however, literature review papers, theoretical
analyses, and methodological contributions are welcome. AABR is receptive to
replication studies, provided they investigate important issues and are concisely
written. The Research Annual especially welcomes manuscripts that integrate
accounting issues with organizational behavior, human judgment/decision
making, and cognitive psychology.
Manuscripts will be blind-reviewed by two reviewers and an associate editor.
The recommendations of the reviewers and associate editor will be used to
determine whether to accept the paper as is, accept the paper with minor revisions,reject the paper or invite the authors to revise and resubmit the paper.
MANUSCRIPT SUBMISSION
Manuscripts should be forwarded to the editor, Vicky Arnold, at Vicky.
Arnold@business.uconn.eduvia e-mail. All text, tables, and figures should be in-
corporated into a word document prior to submission. The manuscript should also
include a title page containing the name and address of all authors and a conciseabstract. Also, include a separate word document with any experimental materials
or survey instruments. If you are unable to submit electronically, please forward
the manuscript along with the experimental materials to the following address:
Vicky Arnold, Editor
Advances in Accounting Behavioral Research
Department of Accounting U41A
School of Business
University of Connecticut
Storrs, CT 06269-2041, USA
xiii
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xiv
References should follow the APA (American Psychological Association) stan-
dard. References should be indicated by giving (in parentheses) the authors namefollowed by the date of the journal or book; or with the date in parentheses, as in
suggested by Earley (2000).
In the text, use the form Rosman et al. (1995) where there are more than two
authors, but list all authors in the references. Quotations of more than one line
of text from cited works should be indented and citation should include the page
number of the quotation; e.g. (Dunbar, 2001, p. 56).
Citations for all articles referenced in the text of the manuscript should be shown
in alphabetical order in the reference list at the end of the manuscript. Only articles
referenced in the text should be included in the reference list. Format for references
is as follows:
For Journals
Dunn, C. L., & Gerard, G. J. (2001). Auditor efficiency and effectiveness with
diagrammatic and linguistic conceptual model representations. International
Journal of Accounting Information Systems,2(3), 140.
For Books
Ashton, R. H., & Ashton, A. H. (1995).Judgment and decision-making research
in accounting and auditing. New York, NY: Cambridge University Press.
For a Thesis
Smedley, G. A. (2001). The effects of optimization on cognitive skill acquisitionfrom intelligent decision aids. Unpublished doctoral dissertation, University.
For a Working Paper
Thorne, L., Massey, D. W., & Magnan, M. (2000). Insights into selection-
socialization in the audit profession: An examination of the moral reasoning of
public accountants in the United States and Canada. Working paper: York Univer-
sity, North York, Ontario.
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xv
For Papers From Conference Proceedings, Chapters From Book, etc.
Messier, W. F. (1995). Research in and development of audit decision aids. In:
R. H. Ashton & A. H. Ashton (Eds),Judgment and Decision Making in Accounting
and Auditing(207230). New York: Cambridge University Press.
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A STRUCTURAL EQUATION MODEL
OF AUDITORS PROFESSIONAL
COMMITMENT: THE INFLUENCE OF
FIRM SIZE AND POLITICAL IDEOLOGY
John T. Sweeney, Jeffrey J. Quirin and Dann G. Fisher
ABSTRACT
This study models auditors professional commitment as the product of
socialization forces operating within the public accounting profession. The
results of a structural equation analysis from a sample of 349 auditorsrepresenting international, national and regional firms indicate that firm size
is inversely related to professional commitment. Furthermore, the findings
indicate that a strong relationship exists between an auditors political
ideology and professional commitment. Politically conservative auditors,
reflecting the dominant ideology in public accounting, reported significantly
higher professional commitment than politically liberal auditors.
INTRODUCTION
The accounting scandals that have marked the dawn of the 21st century, such
as Enron, MCI, and Global Crossing, have damaged the credibility of the audit
report and the reputation of the public accounting industry. Perhaps more than
ever, commitment to the ideals and standards of the auditing profession is vital
Advances in Accounting Behavioral Research
Advances in Accounting Behavioral Research, Volume 6, 325
Copyright 2003 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 1474-7979/doi:10.1016/S1474-7979(03)06001-0
3
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4 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
to maintaining stakeholders confidence in the integrity of the audit report and in
the reliability of financial statement representations. The purpose of this researcheffort is to develop and test a comprehensive model of auditors professional
commitment with the objective of furthering our understanding of this attitude so
essential to maintaining public trust.
A primary contribution of this study to the auditing research literature is
the inclusion of variables not previously considered in models of professional
commitment, namely audit firm size and political ideology. Firm size proxies
for differences in organizational culture (Pratt & Beaulieu, 1992) and the results
indicate that auditors professional commitment is directly and inversely affected
by firm size. As a profession, the culture of public accounting is predominately
politically conservative (Sweeney, 1995).In this study, political ideology is mod-
eled as a socializing variable. The findings indicate that auditors whose ideology
is consistent with the prevailing conservative doctrine are more committed to the
profession than auditors who are politically liberal.
The results of this study have important implications for the public accounting
profession. First, the inverse relationship between firm size and professional com-
mitment is cause for concern, as larger firms and especially the international firms,
dominate the market for audit services. Larger firms also dominate and increasingly
emphasize the more lucrative consulting and non-audit service areas. Perhaps as
a result of the metamorphosis from traditional accounting firms to diverse serviceorganizations, auditors from larger firms may have lessened their identification
with and commitment to the ideals of the accounting profession. Second, the model
indicates that political ideology directly influences commitment, perhaps due to
conservative auditors more readily embracing the conservative values traditionally
associated with the profession. Political ideology also influences perceptions of
success in public accounting, as conservative auditors report a significantly higher
probability of attaining partnership in their firms than liberal auditors.
This paper proceeds in the following manner. The next section reviews the
literature relevant to the development of a model of professional commitment.Hypotheses are then advanced, followed by sections discussing the methodology
and analysis. The final section consists of a summary and discussion.
LITERATURE REVIEW AND HYPOTHESES
DEVELOPMENT
Professional commitment, representing the extent to which one identifies and is
willing to exert effort in support of a profession (Aranya et al., 1981; Aranya &Ferris, 1984),has been conceptualized as a socialization process where emphasis
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A Structural Equation Model of Auditors Professional Commitment 5
is given to cultivating professional values (Jeffery & Weatherholt, 1996; Larson,
1977). For the auditing profession, these values include honoring the public inter-est, independence, integrity, and objectivity. An assumption underlying the attitude
of professional commitment is that the stronger an individuals identification with
and loyalty to the public accounting profession, the less likely he or she will sub-
rogate professional responsibilities (Farmer, 1993). A strong commitment to the
ideals of the profession is considered a prerequisite for independent professional
judgments (Aranya et al., 1981; Gaffney et al., 1993).
The development of auditors professional commitment is generally assumed to
precede the development of their organizational commitment (Aranya et al., 1982;
Aranya & Ferris, 1984). Anticipatory professional socialization often begins in
college, when the choice of accounting as an undergraduate major and career
is made, while organizational commitment commences upon entrance to the
firm (Fogerty, 1992).Early conceptualizations of the professional-organizational
dynamic viewed the two constructs in conflict, as the demands of the employing
bureaucracy were perceived to be in competition with professional loyalties
(Sorenson & Sorenson, 1974). The conflict between organizational and profes-
sional socialization occurs when behaviors concordant with organizational norms
and goals are inconsistent with the professions code of conduct. Violation of
organizational norms may result in internal sanctions levied against the auditor.
Violation of professional standards, such as Arthur Andersens obstructionof justice in the Enron audit, can result not only in penalties levied against
the perpetrator and his or her firm but may also diminish the prestige of the
auditing profession and the publics perception of the assurance provided by the
audit report.
More recent research has not viewed organizational and professional commit-
ment as inherently incompatible, finding instead a positive association between
the two constructs (Aranya et al., 1981, 1982). When the professional and organi-
zational commitments of public accountants are in conflict, however, researchers
have found lower job satisfaction and higher turnover intentions (Aranya & Ferris,1984; Sorenson & Sorenson, 1974). In order to preserve the role of the audit
function in maintaining capital markets, it is essential that auditors commitment
to the profession take priority over loyalties to the organization (Schroeder &
Imdieke, 1977).1
Prior research has generally focused on the consequences of professional
commitment and has consistently found a significant association with important
outcome variables. Professional commitment has had a positive influence on
public accountants job satisfaction (Aranya et al., 1982; Bline et al., 1991)and
organizational commitment (Aranya et al., 1982; Aranya & Ferris, 1984) anda negative association with turnover/migration tendencies (Aranya et al., 1982;
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6 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
Bline et al., 1991) and organizational-professional conflict (Aranya & Ferris,
1984). Professional commitment has also been associated with auditors judgmentregarding client retention decisions (Farmer, 1993).
A Model of Auditors Professional Commitment
The objective of this research is to model auditors professional commitment. The
changing landscape and demographics of the accounting profession suggest that
an understanding of the socializing factors leading to high levels of professional
commitment is needed.Siegal et al. (1991, p. 58)define professional socialization
as the acquisition of the values, attitudes, skills and knowledge of a professionalsubculture.Fogerty (1992)contends that socialization within public accounting
organizations is to a large extent a coercive process, as new initiates are inculcated
to adopt the values of the dominant culture. Our model of professional commitment
examines two socialization factors not previously considered in prior published
research: firm size and political ideology.
Firm Size
Pratt and Beaulieu (1992)asserted that differences in firm size proxy for differ-
ences in culture. They concluded that larger firms have more rigid control systemsthan smaller firms, resulting in the large firms being more structured and mecha-
nistic than the smaller firms. Wheeler et al. (1987) found that the nature of the work
environment, the organizational structure, performance evaluations, compensation
and promotion procedures in large firms differed substantially from those of
smaller firms.Goetz et al. (1991)contended that the more structured and bureau-
cratic environment of larger firms resulted in less individual voice in determining
rules of conduct within the firm.Ponemon (1992)claims that such a strong firm
culture effectively results in the organization weeding out those persons who fail
to conform.These factors imply that the loyalty of accountants in the larger firms must
be first to the organization and then to the profession. Goetz et al. (1991)
support this premise and assert that because smaller firms have less stand-alone
credibility than do larger firms, practitioners in the smaller firms need the
profession more than practitioners in the larger firms. Larger firms are more
visible and prestigious, endowing upon their members an identity separate from
the profession. This suggests that auditors in smaller firms may identify more
readily with the profession, vis-a-vis the organization, than auditors in larger firms
and correspondingly develop a greater sense of commitment to the profession.
H1. Firm size is inversely related to auditors professional commitment.
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A Structural Equation Model of Auditors Professional Commitment 7
Political Ideology
Socialization encourages persons to become similar to their profession, not onlyas it is embodied by other organizational members, but also as it is defined by
the professions espoused ideals (Fogerty, 1992, p. 139). This description of
the socialization process implies the existence of a prototypic public accountant
embodying desirable characteristics, values and attitudes. The more effective the
socialization processes, the greater the correspondence between the prototype
and the professional member. Some values and attitudes (i.e. commitment,
identification) may be more readily influenced and inculcated by the social-
ization process than others (i.e. religious preferences). It is also possible that
some prototypic characteristics are not amendable by socialization (i.e. gender,
race).
A particularly appropriate theory for examining the influence of prototypes
on socialization processes in the auditing profession is self-categorization theory
(SCT) (Chatman et al., 1998; Hogg & Terry, 2000; Tajfel & Turner, 1985).2 SCT
focuses on the process whereby individuals define their self-concept in relation
to their membership in social groups. Prototype-based comparisons, whereby
social categorization of the individual into favorable in-group or unfavorable
out-group membership occurs, lies at the heart of SCT processes (Hogg &
Terry, 2000, p. 122). Prototypes are cognitive representations of the defining
and stereotypical features of in-groups, embodying exemplary or ideal typesand capturing characteristics that differentiate them from other groups. These
characteristics include demographic attributes, behaviors, attitudes and values.
Critical to the notion of prototypes is that they accentuate similarities within and
differences between groups (Hogg & Terry, 2000). For example, because the pro-
totypical partner in public accounting is male, an in-group characteristic may be
masculinity and an out-group characteristic femininity (Maupin, 1993; Maupin &
Lehman, 1994).3
Prototype-based self-categorization is relevant for modeling professional
commitment as a socialization process directed towards cultivating professionalvalues (Jeffery & Weatherholt, 1996; Larson, 1977) for several reasons. First, in-
group members, reflecting prototypic characteristics, are more likely to cooperate
with each other and to compete with out-group members (Chatman et al., 1998).
Second, in-group members are likely to receive favorable treatment compared to
out-group members (Ashforth & Mael, 1989). This favoritism may be reflected
in work assignments, performance evaluations, receipt of voluntary mentoring, or
through informal signals of preference relative to out-group members. As a result,
in-group members are likely to maintain more favorable attitudes towards their
profession and be more readily socialized than out-group members. Third, SCTimplies that a prototypically homogeneous audit profession is likely to develop,
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8 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
which may facilitate socialization by reducing uncertainty regarding appropriate
attitudes and behaviors (Hogg & Terry, 2000).Chatman (1991)utilized a person-organization fit approach, defined as the con-
gruence between organizational and individual values, in examining socialization
processes in public accounting. She found that socialization is facilitated by the
extent that new auditors possess or inculcate values similar to the prototypical
organizational values. Recruits whose values were aligned with the prevalent
organizational values had greater satisfaction and lower turnover than recruits
who maintained dissimilar values.
Kanter (1977) contends that in-group conformity is a prerequisite for ad-
vancement in organizations and that promotion largely depends upon presenting
political views as well as sex-role characteristics that are similar to the dominant
or prototypic upper-level managers. Sweeney and Fisher (1999) propose that
conservative political ideology represents a normative set of shared values in
public accounting and is an important socialization factor. In his analysis of the
influence of social class on political orientation,Burns (1992)identified several
dimensions collectively predictive of conservative ideology. The dimensions
identified as explaining a conservative/Republican political orientation included
engaging in mental (versus manual) labor, self-employment, individualistic
(versus collective) economic orientation, white race and male.4 These dimensions
are generally descriptive of the prototypic audit firm partner.There has been little research to date examining the political orientation of
public accountants. In a broad sample of public accountants, Sweeney (1995)
found that approximately 80% identified themselves as politically conservative.
Further testimony to the conservative orientation of public accounting is reflected
in political party contributions over the last election cycle (19992000). The
combined contributions of the American Institute of Certified Public Accountants
and the Big 5 international firms to the conservatively oriented Republican Party
($3,358,746) were approximately twice those to the more liberal Democratic
Party ($1,708,220) (FECInfo, 2001).If political ideology is an important socializing variable in public accounting,
then conservative auditors are most likely to inculcate and embrace the prototypic
politically conservative values of the profession. Politically liberal auditors may
feel disenfranchised by the conservative orientation of public accounting and have
difficulty identifying with the dominant political values. As a result, it is likely that
politically conservative auditors would be more readily socialized, and therefore
be more committed to the profession, than their politically liberal counterparts.
H2. Politically conservative auditors willhave greater professional commitmentthan politically liberal auditors.
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A Structural Equation Model of Auditors Professional Commitment 9
Control Paths
Prior research has documented that partners in public accounting are typically
male (Hooks & Cheramy, 1994; Hull & Umansky, 1997) and, on average,
have developed to the conventional level of moral reasoning (Sweeney, 1995).
Researchers have suggested that masculinity (Maupin, 1993; Maupin & Lehman,
1994) and conventional moral reasoning (Ponemon, 1992) represent prototypes
in public accounting. Since the influence of both gender and moral reasoning on
professional commitment has been examined in prior research, these variables
are included as control paths in the model of professional commitment.
Although the literature suggests that gender barriers in public accounting may
preclude women from attaining the same level of commitment to the profession as
men (Maupin, 1993; Maupin & Lehman, 1994),the results of empirical research
have been equivocal.Gaffney et al. (1993)found that family obligations increased
the professional commitment of men in public accounting but had no effect on
womens professional commitment. Street et al. (1993), after controlling for
positional level, did not find a difference in professional commitment between
female and male public accountants.
Covaleski et al. (1998) contend that although women may have broken the
glass ceiling to attaining partnership in Big 6 firms, there is still a paucity of
high-level female partners. Women who are unable or unwilling to adapt mascu-line characteristics required by the male-dominated culture of public accounting
may encounter obstacles in making partner (Maupin & Lehman, 1994). Given
the predominance of the male partners and the difficulties that woman may
encounter in adopting in-group male qualities, women in public accounting may
represent an out-group and have correspondingly less professional commitment
than men.
H3. Male auditors will have greater professional commitment than will female
auditors.Ethics researchers in accounting have consistently found that the ethical devel-
opment of auditors, as measured by the P score of the Defining Issues Test
(DIT) (Rest, 1986, 1993), most commonly reflected conventional reasoning
and was inversely related to positional level (Lampe & Finn, 1992; Ponemon
& Gabhart, 1993; Shaub, 1994). This result seemingly contradicts Kohlbergs
(1969) moral development theory, which holds that development is sequential
and progressive but not regressive. Ponemon (1992)contended that the inverse
relationship between P scores and rank in public accounting organizations was
the result of a selection-socialization process whereby firms prefer to hire andthen promote individuals with a shared set of ethical values and beliefs. He found
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10 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
that conventional reasoning auditors, as measured by DIT P scores, were more
likely to be favorably evaluated and promoted and less likely to turnover thanprincipled reasoning auditors.Ponemon (1992, p. 244)asserted that individuals
with too high a level of ethical reasoning may experience difficulty progressing
to the upper echelons in the accounting firms formal hierarchy. In other words,
accountants who reason at a conventional level are most likely to accept, embrace,
and support the prototypical norms of the firm and the profession, increasing
their acceptance within the organization and opportunities for promotion. Thus,
it appears that conventional reasoning, as opposed to higher order principled
reasoning, is representative of the ethical value prototype of the audit profession.
Dwyer et al. (2000)examined the relationship between practicing accountants
professional commitment and DIT P scores. Their results suggested that ac-
countants ethical development influenced their interpretation of the professional
commitment construct, although the authors did not indicate a directional
relationship.Shaub et al. (1993) found that auditors professional commitment
was influenced by their ethical orientation, with ethical idealism positively
related to and ethical relativism negatively related to commitment. Jeffery and
Weatherholt (1996)posited a link between an accountants ethical development,
as measured by DITPscores, and his or her professional commitment. Consistent
withPonemons (1992)selection-socialization hypothesis, Jeffery and Weather-
holt found that conventional reasoning accountants had higher professionalcommitment than principled reasoning accountants.
H4. Professional commitment will be inversely related to auditors ethical
development, as measured by theP score of the DIT.
The relationship between positional level and professional commitment has
also been examined in prior research and is included as a control path in our
model. Advancement within public accounting organizations is largely a result
of socialization processes, whereby individuals who reflect the dominant culture
and values of the organization are more likely to be promoted ( Fogerty, 1992;Ponemon, 1992; Pratt & Beaulieu, 1992). Early research on commitment
in public accounting organizations (Schroeder & Imdieke, 1977; Sorenson,
1967; Sorenson & Sorenson, 1974) suggested that partners were more organi-
zationally oriented and less professionally committed than were staff members.
More recent research has not supported this contention. These studies instead
found that professional commitment is positively associated with rank in the firm
(Adler & Aranya, 1984; Aranya et al., 1981; Aranya & Ferris, 1984; Jeffery &
Weatherholt, 1996; Norris & Niebuhr, 1983).
Goetz et al. (1991)speculated that experience and tenure heighten professionalcommitment. This is consistent with defining professional commitment as a
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A Structural Equation Model of Auditors Professional Commitment 11
socialization process. If the socialization process is successful, then it follows that
those who have been in the profession the longest should display the strongestcommitment. Turnover-survivorship processes would also suggest that profes-
sional commitment should be stronger at higher positional levels. Individuals who
are more committed to the profession would be more likely to remain, which may
explain the inverse relationship between professional commitment and turnover
(Aranya et al., 1982; Bline et al., 1991).
H5. Professional commitment of auditors will increase with rank in the firm.
Hypothesis 3 and Hypothesis 5 posit that gender and rank will have an effect
on professional commitment. Prior studies involving public accountants have
indicated a strong relationship between gender and rank, with females being
underrepresented at higher ranks (Collins, 1993; Hooks & Cheramy, 1994;
Maupin, 1993; Maupin & Lehman, 1994; Sweeney, 1995). As a result, it is
necessary to control for the influence of positional level when assessing the
relationship between gender and professional commitment.
Prior research assessing the ethical development of public accountants have
generally found the DITPscores of females to be higher than the scores of males
(Bernardi & Arnold, 1997; Enyon et al., 1997; Shaub, 1994; Sweeney, 1995).
The gender effect onP scores appears to hold regardless of firm size. As a result,
the ethical development of female auditors is expected, on average, to be moreadvanced than that of male auditors. Therefore, the influence of gender must be
controlled for in assessing the effect of ethical development, as measured by DIT
Pscores, on auditors professional commitment (H4).
Sweeney and Fisher (1998, 1999) and Fisher and Sweeney (2002) contend
that the DIT contains an imbedded political content biasing the measurement of
test-takers ethical development. AlthoughRest et al. (1999)dispute this claim,
they concede that as much as 40% of the variance in DIT P scores is explained
by political ideology. A priori, the political content of the DIT will result in an
upward bias in theP scores of politically liberal auditors and a downward bias intheP scores of politically conservative auditors (Sweeney & Fisher, 1998, 1999).
Therefore, the influence of political ideology must be controlled in assessing the
effect of ethical development on professional commitment (H4).5
In summary, we hypothesize that auditors professional commitment is directly
impacted by the following variables: firm size (H1), political ideology (H2),
gender (H3), ethical development, as measured by DIT P scores (H4), and
positional level (H5). The model of professional commitment also includes the
following control paths: positional level on gender, gender on ethical development,
and political ideology on DITP scores.Figure 1presents our model of auditorsprofessional commitment.
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A Structural Equation Model of Auditors Professional Commitment 13
Table 1. Descriptive Statistics for Sample.
Position Firm Size Totals
Small Medium Large
Staff 23 22 55 100
Senior 15 10 63 88
Supervisor 11 8 19 38
Manager 10 14 39 63
Partner 29 9 22 60
Totals 88 63 198 349
Males: 230 Liberals: 63 Average age: 30.3 years (S.D. = 8.1)Females: 119 Conservatives: 286 Average experience: 7.3 years (S.D. = 7.1)
Professional PScore
Commitment
Mean: 75.51 42.14
S.D.: 11.73 12.53
Range: 41103 8.373.3
was voluntary and subjects were assured of anonymity. Participants provided
demographic data but did not otherwise identify themselves.
A total of 383 research instruments were received by the researchers, resulting in
a response rate of approximately 72%. From this initial sample, 27 subjects failed
to pass the internal reliability checks of the DIT, two subjects did not indicate their
political ideology, and five did not complete the professional commitment section.
These respondents were purged from the sample. The final sample consisted of a
cross-section of 349 auditors, of which 66% were male and 82% were politically
conservative. Descriptive statistics for the sample are given in Table 1.
Measures
Professional commitment (PC) was measured with the 15-item scale adapted by
Aranya et al. (1981) from the Porter et al. (1974) organizational commitment
questionnaire. This scale has been utilized extensively by accounting researchers
to measure professional commitment (Aranya et al., 1982; Gaffney et al., 1993;
Harrell et al., 1986; Jeffery & Weatherholt, 1996; Street et al., 1993).Researchershave indicated that the scale has good internal consistency, with Cronbachs
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14 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
alpha reported in the high 0.80s (Aranya et al., 1981; Aranya & Ferris, 1984;
Bline et al., 1991).Bline et al. (1991), in an extensive examination of the psychometric properties
of the professional commitment questionnaire, report that the scale measures a
construct distinct from organizational commitment. Their tests indicated that the
professional commitment scale has adequate reliability and validity. Furthermore,
the professional commitment construct correlated positively with job satisfaction
and negatively with intent to leave the profession. Other accounting researchers
have reported negative correlations between the professional commitment scale
and organizational-professional conflict (Aranya et al., 1981; Harrell et al., 1986)
and positive correlations with favorable work attitudes in public accounting
(Aranya et al., 1982).6
Ethical development was measured by the sample respondents P score
from the 6-story DIT (Rest, 1979, 1986, 1993). The P score is a continuous
measure, ranging from 0 to 95, reflecting the relative importance a subject gives
to principled moral reasoning in resolving moral dilemmas (Rest et al., 1997,
p. 498). Rest (1993) reports an average P score of 45 for college graduates,
although accounting researchers have generally found that public accountants
score lower than adults from the general population at similar educational levels
(Ponemon, 1992; Sweeney, 1995).Rest (1986, pp. 176179)contends that theP
score correlates most strongly with educational level but only weakly with gender,intelligence and ethnic background. Gender, however, appears to have a stronger
influence on accountants P scores than it does in the general population, with
females attaining significantly higher scores (Bernardi & Arnold, 1997; Enyon
et al., 1997; Shaub, 1994; Sweeney, 1995).
The DIT has been subjected to extensive reliability and validity tests with
generally good results (Rest, 1979, 1986; Rest et al., 1999). Some researchers
(Emler et al., 1983), however, contend that the DIT contains a political bias. In
studies with accounting subjects,Sweeney and Fisher (1998, 1999)found that the
DIT contained an imbedded political content that tended to overstate the scoresof political liberals and to understate the scores of political conservatives. They
suggest that researchers utilizing the DIT control for subjects political ideology in
order to more clearly interpret the relationship between P scores and the variable
of interest.
Subjects indicated their political ideology in response to the following ques-
tion: Regarding important social and political issues, would you classify your
opinion or perspective as primarily conservative or liberal? Forcing subjects to
identify their positions asprimarilyliberal or conservative is consistent with prior
research (Sweeney, 1995)and eliminates the ambiguity of a political moderateclassification.
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A Structural Equation Model of Auditors Professional Commitment 15
EMPIRICAL RESULTS
Correlations
Table 2 presents correlation coefficients for professional commitment and
variables of interest. Subjects professional commitment is negatively associated
with the size of their respective firm and positively associated with their positional
level. Political ideology and gender are associated with professional commitment
and DIT P scores. Political ideology is not correlated with gender, position, or
firm size. The significant association between gender and position results from the
underrepresentation of female auditors at thehigher ranks. Theassociation betweenfirm size and position is an apparent artifact of the non-random sample selection
process.
Structural Equation Modeling
Structural equation modeling was used to evaluate the proposed hypotheses. The
structural equation model utilized to test the hypotheses corresponds to the model
inFig. 1. Each link between the variables in Fig. 1 has a path coefficient that
measures the impact of the antecedent variable in explaining the variance in the
outcome variable. For example, the path coefficient for the link between political
ideology and P score indicates the increase in P score, measured in standard
deviations, associated with a one standard deviation increase in political ideology.
The goal of structural equation modeling is to evaluate whether associations
proposed in theory, or in prior research, fit the present data set. Evidence of proper
fit is provided by various other fit indices. However, measures of proper fit can
Table 2. Correlation Matrix.
Professional Firm Political PScore (4) Position (5) Gender (6)
Commitment (1) Size (2) Ideology (3)
(1) 1.000
(2) 0.246** 1.000
(3) 0.132** 0.087 1.000
(4) 0.017 0.080 0.194** 1.000
(5) 0.234** 0.146** 0.046 0.105* 1.000
(6) 0.116* 0.054 0.055 0.205** 0.353** 1.000
N= 349.p
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16 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
be problematic since several of the commonly used fit indices are sample size
dependent. For this reason, multiple measures of overall model fit are reported inthis study.
The Normed Fit Index (NFI) (Bentler & Bonett, 1980) has an index range
from 0 to 1, with values over 0.9 indicating a good fit. This index may be viewed
as the percentage of observed-measure covariation explained by a given model.
The disadvantage of the NFI is that it can underestimate goodness-of-fit in small
samples.Bentlers (1990)revised Normed Comparative Fit Index (CFI) is based
upon the Bentler and Bonett (1980) NFI but with a correction for sample-size
dependency. CFI values always lie between 0 and 1, with values over 0.9 indicating
a relatively good fit (Bentler, 1990). Finally, the Adjusted Goodness of Fit Index
Fig. 2. Structural Equation Model with Path Coefficients.
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A Structural Equation Model of Auditors Professional Commitment 17
Table 3. Structural Equation Modeling Results.
Dependent Independent Associated Path t-Value p-ValueVariable Variable Hypothesis Coefficient
PC Firm size H1 0.236 4.65 0.001
Political ideology H2 0.154 2.98 0.002
Gender H3 0.042 0.76 0.224
PScore H4 0.059 1.13 0.132
Position H5 0.184 3.43 0.001
Position Gender 0.353 7.04 0.001
PScore Gender 0.195 3.78 0.001
Political ideology 0.183 3.55 0.001
N= 349. PC = Professional Commitment.
(AGFI), devised byJoreskog and Sorbom (1984),is an additional fit index that
ranges from 0 to 1, with values above 0.9 indicating acceptable fit. Specifically,
in addition to the traditional Goodness of Fit Index (GFI), the Adjusted Goodness
of Fit Index (AGFI), the Normed Fit Index (NFI), and the Comparative Fit Index
(CFI) are reported in this study. This lends some assurance that the measures of
fit produced are not spurious.
Figurative depictions of the results of the structural equation analysis arepresented in Fig. 2. With GFI, AGFI, NFI, and CFI values exceeding 0.9 in
all instances, the theoretical model appears to provide a very good fit with the
dataset.
Tabular results of the structural equation analysis including a listing of each
hypothesis and its corresponding path coefficient are presented in Table 3.
Consistent with the relatively high model fit indices, results inTable 3indicate
that an overwhelming majority of the associations hypothesized in the current
study and suggested by prior literature were significant, providing further support
for the proposed theoretical model of professional commitment.
Tests of Hypotheses
Hypothesis 1 predicts a negative relationship between firm size and professional
commitment. The path coefficient for this theoretical link is 0.236 and is
significant at the p
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18 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
tailed t-test indicated that the professional commitment of politically con-
servative auditors was higher than that of liberal auditors (76.2 vs. 72.2;p
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A Structural Equation Model of Auditors Professional Commitment 19
Additional Analysis
Table 4 examines the influence of the significant main effects on auditors
professional commitment, partitioned by firm size, position and political ideology.
Professional commitment scores are highest in the regional firms and, as expected,
at the partner level. Senior auditors in regional and national firms also demonstrate
relatively high commitment. The influence of political ideology is evident, as
Table 4. Summary of Professional Commitment Levels By Political Ideology
and Position for Each Firm Size.
Firm Size n Mean PC Position N Mean PC Political Ideology n Mean PC
Small 88 80.02 Staff 23 75.57 Conservative 17 77.06
Liberal 6 71.33
Senior 15 80.20 Conservative 11 81.27
Liberal 4 77.25
Supervisor 11 77.91 Conservative 9 80.11
Liberal 2 68.00
Manager 10 76.90 Conservative 8 77.13
Liberal 2 76.00
Partner 29 85.34 Conservative 21 86.38
Liberal 8 82.63
Regional 63 76.44 Staff 22 76.64 Conservative 16 78.31
Liberal 6 72.17
Senior 10 80.3 Conservative 9 78.89
Liberal 1 93.00
Supervisor 8 72.75 Conservative 8 72.75
Liberal 0
Manager 14 72.93 Conservative 13 71.92
Liberal 1 86.00
Partner 9 80.44 Conservative 8 79.25Liberal 1 90.00
Big 6 198 73.21 Staff 55 73.47 Conservative 48 74.13
Liberal 7 69.00
Senior 63 69.08 Conservative 48 70.04
Liberal 15 66.00
Supervisor 19 73.89 Conservative 17 75.35
Liberal 2 61.50
Manager 39 72.23 Conservative 32 73.31
Liberal 7 67.29
Partner 22 85.55 Conservative 21 85.10
Liberal 1 95.00
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20 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
conservative auditors have higher commitment than liberal auditors for every cell
containing at least two liberal auditors.An objective of socialization is to insure that management promotes those
individuals who reflect the culture and values of the organization (Fogerty, 1992;
Kanter, 1977; Ponemon, 1992). If conservative ideology is a strongly held value
in the culture of public accounting, then politically conservative auditors should
perceive greater opportunities for advancement than politically liberal auditors.
To provide further evidence of the socializing influence of political ideology
in public accounting, subjects who were not partners were asked to respond
to the following question: Please indicate what you believe are your chances
(likelihood) of making partner in your present firm. The Likert response scale for
the question ranged from 1 (very low) to 7 (very high). Conservative auditors, on
average, perceived their opportunities for advancement to partner as significantly
greater than liberal auditors (3.68 vs. 2.96; p
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A Structural Equation Model of Auditors Professional Commitment 21
The process of socialization implies that membership within the dominant
group conveys benefits. Feelings of inclusion or exclusion from the controllinggroup are likely manifested in important job-related attitudes, such as professional
commitment (Chatman, 1991; Ponemon, 1992). A major contribution of this study
to the research literature is the inclusion of political ideology as a socializing force
in public accounting organizations. Politically conservative auditors, representing
the dominant ideology, had a greater commitment to the profession than did
liberal auditors.
The public accounting profession has, in recent years, increasingly emphasized
the recruitment of under-represented socio-economic groups; however, a truly
diverse workplace is open to disparate opinions and viewpoints. Although
public accountants have traded their green eyeshades for laptop computers, they
appear to still embrace a politically conservative ideology. Firm management
can benefit from this research in understanding that the public accounting
profession may be so doctrinally conservative that it could be effectively
excluding a significant segment of society, political liberals, whose perspectives
may be valuable in understanding a rapidly changing world. Efforts directed
towards changing the traditionally conservative image of the public account-
ing profession may be beneficial in attracting new members with alternative
viewpoints.
Although male auditors, on average, reported a stronger commitment to theprofession than female auditors, gender was not a significant direct factor in the
model after controlling for the influence of positional level. Gender, however,
did have an indirect impact on professional commitment. After controlling
for political ideology and gender, the relationship between auditors ethical
development and professional commitment previously reported was not supported
(Jeffery & Weatherholt, 1996).
The limitations of this research need to be recognized. First, the sample
selection process was non-random, which may limit generalizability. Second, as
the data were drawn from survey questionnaires, reliability is dependent upon thetruthful responses of the participants. Third, the dichotomous measure of political
ideology did not reflect the intensity of the subjects commitment to conservative
or liberal positions. A more comprehensive measure may better contribute to our
understanding of the impact of political ideology as a socializing force in public
accounting organizations.
Potential extensions of this research include examining further the impact of
political ideology in accounting organizations. The relationship between political
ideology and important job-related attitudes, such as satisfaction, organizational
commitment and turnover intentions, may advance our understanding of profes-sional socialization. Political ideology may also affect other important processes
in public accounting, such as recruitment and audit team dynamics.
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22 JOHN T. SWEENEY, JEFFREY J. QUIRIN AND DANN G. FISHER
NOTES
1. Former Securities and Exchange (SEC) Commissioner Arthur Levitt questionedwhether the expansion into more lucrative services compromises the traditional auditfunction (Covaleski, 1999). Suggesting that the audit has merely become a conduit forselling other services, Levitt contends that auditors may not be sufficiently committed tosocietal expectations and professional standards.
2. SCT is an extension of social identity theory (SIT) (Ashforth & Mael, 1989; Brown,2000; Tajfel & Turner, 1985).SIT maintains that ones social identity is derived primarilyfrom group membership, that people strive to maintain a positive identity, and that thispositive identity largely results from favorable comparisons between relevant in-groupsand out-groups (Ashforth & Mael, 1989).
3. Fogerty (2000, p. 13) described the socializing influence of prototypes in publicaccounting firms when he stated: Experienced organizational members selectively providereinforcement, communicate the approved range for action, and serve as examples ofachievement.
4. An individualist orientation supports the notion of capitalism in viewing people asindependent economic actors, as opposed to a collectivist orientation that is more alignedwith a socialist perspective (Burns, 1992, p. 352).
5. After controlling for political ideology and gender, Sweeney (1995)did not find asignificant relationship between rank and DITP scores. Therefore, we do not control forthe influence of rank on ethical development.
6. Dwyer et al. (2000)examined the dimensionality of theAranya et al. (1981)pro-
fessional commitment scale with a broad sample of practicing accountants and concludedthat the 15-item scale could be parsimoniously reduced to a five-item measure. In light ofthis research, we performed a principal components, orthogonal rotation factor analysis ofthe instrument. Results of the factor analysis indicated that 14 of the 15 items possessedloadings of 0.40 or greater on a single factor. Item 7 of the instrument, which possessed aloading of 0.15, was the lone item not contributing to the factor. The resulting eigenvaluefor the 14-item factor was 5.49. The Cronbach alpha for the 15-item measure was 0.88.Supplemental analyses utilizing the reduced 5-item scale fromDwyer et al. (2000)were alsoperformed and the results were essentially identical to those incorporating the full scale.
ACKNOWLEDGMENTS
We gratefully acknowledge the helpful comments of the participants in 2001
Annual Meeting of the Accounting, Behavior & Organizations Section, the 2002
Critical Perspectives in Accounting Conference, and the accounting research work-
shops at the Australian National University and at Washington State University.
REFERENCES
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A Structural Equation Model of Auditors Professional Commitment 25
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W. G. Austin (Eds), Psychology of Intergroup Relations(2nd ed., pp. 724). Chicago: Nelson-
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Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. Englewood Cliffs, NJ: Prentice-
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AN ANALYSIS OF GROUP
INFLUENCES ON GOING
CONCERN AUDITOR JUDGMENTS
Sunita S. Ahlawat and Timothy J. Fogarty
ABSTRACT
Studies that have indicated that the processing of audit evidence results in
judgment bias may be the result of the study of individual decision-making.
Building on work that suggests important differences between individual
and group decision-making, this paper evaluates decision-making attributes
of audit groups. Experienced auditors from offices of Big-Five firms in theU.S. served as the participants in an experiment involving the going concern
judgment. Results show that recency does affect the judgments of individual
auditors but disappears as an important effect when groups make judgments.
Group responses are less extreme and exhibit greater confidence than those
of individuals.
INTRODUCTION
The descriptive theory of belief updating proposed by Hogarth and Einhorn (1992)
posits that the order in which evidence is received has a significant and predictable
influence on a persons final judgment. Most of the attention generated by this
discovery has focused around recency effects. Recency refers to the tendency to
place a greater weight on evidence received later in a sequence. Accordingly, an
over-reliance on information presented last may occur. A number of experimental
Advances in Accounting Behavioral Research
Advances in Accounting Behavioral Research, Volume 6, 2751
2003 Published by Elsevier Ltd.
ISSN: 1474-7979/doi:10.1016/S1474-7979(03)06002-2
27
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28 SUNITA S. AHLAWAT AND TIMOTHY J. FOGARTY
studies utilizing various conditions suggest that significant recency effects exist in
accountants and auditors belief revisions (e.g.Asare, 1992; Ashton & Ashton,1988; Dillard et al., 1991; Pei et al., 1992; Trotman & Wright, 1996; Tubbs
et al., 1990). However, recent research has questioned the prevalence of recency
in auditing.Cushing and Ahlawat (1996)suggested that such effects may not be
common in audit practice. Other studies also have produced evidence that recency
effects do not always occur, or occur only under certain circumstances (Kennedy,
1993; Messier & Tubbs, 1994; Trotman & Wright, 1996).
This paper builds on the growing recognition that contextual factors (e.g.
accountability, cognitive involvement, experience, and task realism) might
mitigate judgment bias in audit judgment. Another potential factor is group
influence. Many auditing situations involve either formal or informal group
consultation (Gibbins & Emby, 1985). For example, a team of audit staff and
seniors typically conduct audit fieldwork. The group expands as managers and
partners review this work prior to the issuance of an audit report. However, the
growing recognition that cognitive heuristics and biases in auditors judgments
can lead to different outcomes, including different types of audit reports (e.g.
Asare, 1992),has developed with little consideration of group influences.
This research investigates the potential for group processes to overcome
weaknesses in accountants judgment. In addition to the recency bias, this paper
also examines the related attributes of decision confidence and belief revision
that vary between audit groups and individual auditors. This research finds
fundamental differences between groups and individuals in their exposure to
recency effects, the nature of their belief revision processes, and their confidence in
decisions. Four subsequent sections are employed. The first develops the lit-
eratures surrounding group decision-making and judgment biases as a prelude
to stating the research hypotheses. The second describes the empirical study.
The last two sections present the results and discuss their implications and
limitations.
LITERATURE REVIEW AND RESEARCH HYPOTHESES
Groups and Group Decision-Making
The unique condition of the group in business settings has been studied for some
time. Early studies measured the impact of social cues and interpersonal opinions
on performance and cognitive investment (Weiss & Shaw, 1979; White et al.,
1977). As this area matured, interactive effects between group conditions andindividual attributes were recognized (e.g. Vance & Biddle, 1985). Apart from
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An Analysis of Group Influences on Going Concern Auditor Judgments 29
these more generic aspects, groups also were found to influence decision-making.
Although individuals come to the group with some degree of pre-discussionpreferences and unique decision-relevant information that continue to influence
group decisions (Winquist & Larson, 1998), the group resists reduction to the
sum of its members. Groups are believed to produce substantively different
decisions than individuals (Hill, 1982; Miner, 1984). The improved accuracy of
groups that has been reported in many areas may be attributable not only to the
increased perspectives contributed by members, but also to the heightened caution
as consensus processes tend to eschew extreme solutions (Myers & Lamm,
1976). Although the balance of evidence suggests net gains for group decisions
over those of individuals, a full explanation of their origin remains elusive. The
extent that groups may be effective at reducing the random error associated with
individual choice, may depend on the effectiveness with which feedback can be
incorporated. Group advantages may also center on the reduction of individual
variability. However, the importance of these conditions varies with the context
of the decision.
Group Decision-Making in Accounting and Auditing
Solomons (1987)review of the literature on multi-auditor decision-making has
not resulted in a critical mass of work on audit groups. Notwithstanding the paucity
of academic treatments, the audit process resolutely remains the result of group
deliberations. Evidence gathered by auditors continues to reflect team processes.
Work done by staff members still requires a consensus distillation of conclusions.
Work reviewed by supervisors, and then by partners, indicates a group orientation
toward the work.1 The computerization of the audit may have changed the medium
for group interaction but it has not altered the necessity for a meeting of the minds
by auditors.
A going concern decision involves aspects of both individual and multi-persondecision-making. The decision is based on many pieces of evidence that may have
been gathered and initially reviewed by selected individuals. Because predicting
the going concern status is critical, it is unlikely to be made by an individual
without extensive consultation with the audit team and other audit firm members.
While the decision itself is likely to be made by a group, individual opinions
also are important since pivotally-situated individuals (managers, seniors, and
staff), who themselves have weighed the evidence, make recommendations,
and suggestions. Consultation with other auditors prior to important decisions
(such as going concern) conforms to the requisites of professional auditingstandards (Reckers & Schultz, 1993). If group judgments are significantly
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30 SUNITA S. AHLAWAT AND TIMOTHY J. FOGARTY
different from individual judgments, the practical implications of going concern
studies involving only individual judgment alone may be somewhat limited.The going concern judgment has been characterized as a series of belief
revisions, where each revision is the weighted average of the previous judgment
and the value of the current evidence (Asare, 1992; Cushing & Ahlawat, 1996).
The final revised belief is then compared to the threshold for substantial doubt
for issuing an unqualified opinion (Asare, 1992). Thus, unlike most other audit
decisions, the going concern matter goes right to the bottom line for both clients
and auditors.
The evaluation of going concern status is regarded as critical, difficult, and
complex by most partners (Chow et al., 1987). This necessitates some considera-
tion of how such a decision is made.Cushing and Ahlawat (1996)asserted that in
order to effectively revise beliefs the auditor must: (1) read and comprehend all
information cues provided; (2) adequately recall relevant information provided
in prior stages of the sequential task; (3) give sufficient attention to relevant prior
and new information at each stage; (4) effectively relate all of this information to
his or her existing knowledge structure; and (5) develop a problem representation
sufficient to complete the task effectively. Failure to carry out any one or more of
these activities could contribute to the recency effect (Cushing & Ahlawat, 1996).
However, these requisites also imply that recency can be reduced with greater
effort or attention. A number of studies have encouraged active involvement in the
above activities. These include studies that examined the effects of accountability
(Kennedy, 1993; Tetlock, 1983), documentation (Cushing & Ahlawat, 1996),
explanation (Anderson & Sechler, 1986), and commitment (Church, 1991).
Tetlock (1983)andKennedy (1993)reported that judgments were less prone to
order effects when participants were told that they may subsequently have to justify
or explain their conclusions to others, such as their superiors. Apparently, the mere
prospect of accountability was sufficient to produce more desirable information
processing. In contrast,Cushing and Ahlawat (1996)andChurch (1991)required
participants to prepare a memorandum documenting the rationale for an auditdecision. Similar results of reduced recency were reported. A common objective
underlying these manipulations was to produce greater cognitive involvement and
effort among participants.
Although many decisions in the audit process are important, few match the
consequences of the going concern decision. Accordingly, the audit firm would
like to be highly confident that it has made the correct decision. The measurement
of endogenous and exogenous levels of confidence has been part of the study of
groups for some time (e.g.Zarnoth & Sniezek, 1997).In situations that lack clear
correct answers, such as the going concern area, confidence and accuracy are notredundant (Luus & Wells, 1994).The formation of groups to make decisions may
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An Analysis of Group Influences on Going Concern Auditor Judgments 31
be a means to increase confidence levels. However, at this point it is unclear if
audit groups are more confident about such decisions than would individuals bewhen making the same decision.
In sum, group dynamics may provide opportunities for more complete problem
analysis of the going concern decision. The group process may be another form of
cognitive investment that people put into a decision. Focusing primarily upon the
tendency towards recency effects in such an environment allows us to evaluate the
impact of the group. However, other group differences may also be involved for a
broader picture of how groups compare to individuals in the auditing context.
Hypotheses
The studies discussed above suggest that the tools that enhance cognitive involve-
ment can mitigate order effects. Group decision-making can serve to enhance
effort and involvement. Group assistance can also be useful in lessening task
demands. Groups have collective experience to draw from, whereas individuals
work alone. Studies in social psychology have found that livelier interaction
among group members was associated with superior performance (e.g.Valacich
& Schwenk, 1995).Interacting groups also reduced belief perseverance (Wright
et al., 1990).These findings suggest that the interaction process itself may have
a positive effect on judgment.
Two aspects of group process could contribute to superior performance. The
group tends to broaden the information set that is brought to bear upon a choice
(Stasser, 1992). This information set includes perspectives on what factual data
means and what limitations it possesses. Group processes also reduces individual
inconsistency or extremity (Schultz & Reckers, 1981). As information exchange
between members occurs, group interaction becomes a corrective function when
individual members have initially incomplete or biased information (Stasser &
Titus, 1985) and are encouraged to alter opinions in order to reach a collectivejudgment (Stasser & Davis, 1981).
The complexities of some audits make group processes even more salient.
Auditors are aware of the importance of group work and the need to share and
integrate expertise (Schultz & Reckers, 1981). The audit requires considerable
knowledge about industries and competitive factors in order to ascertain the con-
sequences of account balance fluctuations.Fisher and Ellis (1990)suggested that
social pressures created by the group interaction process would moderate extreme
or divergent views held by group members as they work to accommodate each
others views. In an audit setting, groups may be useful in preventing anecdotalexperience about certain business conditions from being overly generalized.
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Groups may collectively recognize patterns and relationships that individuals
working alone may not. Group discussion can lead to a more complete problemanalysis resulting in improved judgment quality. Judgment quality is a function
of capacity, effort, internal data (i.e. memory and knowledge), and external data
access (Kennedy, 1993). Because of potential pooling of resources, correction of
errors, and use of qualitatively different learning strategies, process gains from
interaction are possible (Hill, 1982). Estimation biases observed with individual
judgments can be reduced considerably through group interaction (Sniezek &
Henry, 1989). Similarly, group interaction also may mitigate recency due to some
combination of enhanced capability, experience, and cognitive involvement.2
This study specifically examines the consequences of group interaction as a
means to overcome the limitations of the study of individuals engaging in acts that
are more likely performed by groups. By holding the amount of information that
decision-makers have more constant than would be true in an actual audit, this study
enables a focus upon the judgment process. Since groups can increase cognitive
effort, reduce complexity, and capitalize on experience, they should exhibit less
recency bias than individuals. Recency may not be a serious problem in practice
if audit groups are less susceptible to the order in which evidence is presented.
Based on the preceding discussion, the following hypothesis is tested:
H1. Audit groups will exhibit less recency effects in their going concernjudgments than will individual auditors.
Over the last fifteen years, many researchers have recognized that individual
confidence is an important dimension of group interaction. Unlike accuracy,
confidence can be made explicit at the time judgments are made. Therefore,
confidence is a key indictor of the extent that uncertainty is perceived to be
inherent in a task. High levels of uncertainty suggest that a decision is unusually
sensitive to differences in judgment. This condition may make judgment biases
more consequential to the decision. Accordingly, confidence and accuracy can be
affected by different factors (Luus & Wells, 1994).Sniezek and Henry (1989, 1990) postulate a two-stage process for groups
to reach a consensus judgment: (1) the revision process; and (2) the weighting
process. At the revision stage, individual judgments are voluntarily revised in
light of information exchanged during interaction. At the weighting stage, group
members use some implicit or explicit rule to combine divergent views and
negotiate their individual judgment to form a single group judgment. This process
is sufficiently engaging and explicit so that when group members adopt a single
group judgment, they may have higher confidence in that group judgment than
they would have had in their own individual judgment (Sniezek & Henry, 1990).After the weighting process, group members should express higher confidence
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An Analysis of Group Influences on Going Concern Auditor Judgments 33
about their decision because it takes into account a wide set of perspectives on
importance. Lower confidence would be inconsistent with the social pressuresthat support the participatory consensus formation around the groups choice. As
such, the group interaction process may lead to higher group confidence compared
to the individual members pre-group confidence (Sniezek & Henry, 1989, 1990).
The greater confidence may also reflect individuals recognition that groups can
potentially recognize, evaluate, and process more information than individuals.3
In an accounting study, Bloomfield et al. (1996) showed that interaction that
inspired group confidence contributed to group performance. In a different vein,
Allwood and Granhag (1996) found that groups inspired not only confidence,
but also realistic confidence.
The level of confidence is particularly important for the going concern decision
made by auditors. The evaluation of business survival is inherently oriented toward
the future and therefore is more uncertain than most auditing decisions. Since the
going concern decision has distinct adverse consequences for the client, high levels
of confidence are called for to withstand the client resistance that is likely to result.
Accordingly, the following hypothesis will be considered:
H2. Audit groups will exhibit greater confidence than individual auditors about
going concern decisions.
Research over the last thirty years has identified many reasons to depart from
the belief that the direction of influence in decision-making is symmetrical.
Human beings are not bound to strict mathematical consistency when dealing
with information that points to one conclusion relative to information that leads
to an opposite result. Pivoting around a baseline (zero), positive movements and
negative cues of equal magnitude have often been shown to be processed in a
qualitatively differently way. However, the reasons that individuals are influenced
by these frames of reference are imperfectly understood (Newman, 1980).
If group-based reasoning is capable of integrating more information and wider
perspectives, it also may be capable of altering the tendency to treat categories ofcues in ways that are inconsistent with Bayesian logic. The more varied experiences
available to the group as input to their decision may work against the tendency
to over-weigh the negative or the positive. If framing effects are psychological in
nature, forcing them into open discussion may have the effect of exposing their
inconsistency. In other words, there may be more balance in how groups react to
positive and negative types of information than there would be in how individuals
react to that same information.
Auditing has been described as the attempt to confirm a series of interrelated
hypotheses about the clients accounting records (Church & Schneider, 1993).Evidence that the accounts are correct as stated therefore can be logically
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opposed to evidence of material error. The going concern decision appears to be
a special case of this bifurcation of evidence, here contrasting pro-survival andanti-survival implications for the business entity. Whereas the former mitigates
against a going concern problem, the latter type tends to confirm such a problem.
What individual auditors may do in the consideration of these types may not be
the same as what groups would do. Individual auditors may not be as able to
recognize that they are acting in a way that systematically over weighs either
positive or negative information. Groups may therefore be less likely to overreact
to either good news about audit client viability or bad news about doubtful
continuation. A two-part hypothesis that pinpoints the possibilities of difference
would be:
H3a. Audit groups will revise their beliefs about going concern in response to
confirmatory going concern evidence less than individual auditors.
H3b. Audit groups will revise their beliefs about going concern in response to
mitigating going concern evidence less than individual auditors.
In sum, four specific effects that differentiate groups and individuals are expected.
Groups should be less influenced by the order of the evidence that they consider
in a going concern decision context. They should also exhibit higher levels of
confidence about the accuracy of their determinations. Groups are expectedto be more temperate in their reactions to incremental positive and negative
information. Together, the hypotheses suggest that groups will make less bias and
more confident going concern decisions.
THE EXPERIMENT
An experiment was designed to test the hypotheses in a context where auditors
are asked to evaluate a clients ability to continue as a going concern. This typeof context has been employed frequently in prior studies of recency effects in
audit judgment. The specific task in the experiment involves making a series of
judgments about a firms going-concern status and a recommendation about the
type of audit report to issue.
The experiment was conducted in the offices of the participating international
public accounting firm over a four-week period. In each office, arrangements were
made for subjects to participate as individuals or as members of three-person
groups. Judgments were made privately by individuals or collaboratively in
groups. Although the assignment of participants to conditions was random, groupcomposition was subject to member availability at the pre-established time for
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An Analysis of Group Influences on Going Concern Auditor Judgments 35
the exercise.4 The only qualifying stipulation was that participants were primarily
engaged in the auditing activities of the firm and that they had at least two yearsof experience. A researcher distributed and collected all materials in person. For
groups, the researcher was present outside the meeting room for the duration of
the deliberations. Individuals completed the task in their offices, but without the
physical proximity of the researcher.
Task and Procedure
Each participant was provided with case material. Although each member of the
group was given a copy of the case, groups were instructed to respond collectively
on a single response sheet. Group members were encouraged to discuss the case
prior to reaching a consensus. Each group designated one member to record the
group response.
A cover letter accompanying the case materials suggested that the task should
take about 60 minutes to complete. Whereas letters to groups emphasized the
importance of working collectively, letters to individuals stressed the need for
independent work. Both types of letters asked participants to proceed through the
materials in one sitting. All participants were guaranteed anonymity, assured that
there were no right or wrong answers, and told that most of the questions dealt
with matters of professional judgment.
Participants were asked to read the case assuming that they were performing a
review of preliminary results from the current years audit engagement. The case
was previewed for realism and relevance by audit professionals other than the
participants and was revised in accordance with their suggestions.
The experimental materials consisted of a set of instructions and a case
booklet. The case booklet contained background and financial information for a
hypothetical client. The background information included a detailed description
of the industry and a company, its operations, economic environment, and the typeof audit opinion it had received in the last two years. The financial information
comprised audited financial statements for the past three years and the current
year. This information included the balance sheet, income statement, selected
financial ratios, footnotes, statement of changes in financial position, and schedule
of working capital changes. The experimental materials were designed to create
a case in which the audit decision was not an obvious unqualified or modified
(going concern) opinion.
Figure 1depicts the sequence of procedures required of the auditors for the
experiment. The case consisted of four tasks. Participants were asked to completeeach task in the order given to capture belief revision. They were instructed to
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Fig. 1. Procedure for the Experiment.
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existence through the end of current fiscal year. After providing the last of these
assessments, participants were again asked to recommend the type of audit reportto be issued and to indicate their confidence in the appropriateness of that report.
The six items were presented in two orders. In the condition labeled MMMCCC
on Fig. 1, the three mitigating factors (MMM) were presented first, followed by the
three pieces of contrary information (CCC). The order of evidence was reversed
in the second condition, labeled CCCMMM. The variation in the order of cues
was the recency manipulation. Each of these items was presented on a new page
contained in an envelope. Participants were asked to complete a new 0100 scaled
sealed assessment of the hypothetical companys continuation as a going concern
b