Date of Award

5-1-2010

Degree Name

Doctor of Philosophy

Department

Accountancy

First Advisor

Odom, Marcus

Abstract

Auditors are subjected to various affective states during a financial examination and these affective states influence how auditors retrieve, encode, and process audit observations and client representations. Do the affective states induced by auditors' interpersonal relationships with the client, the audit partner, and other team member collectively impair audit objectivity? This study investigated the relationship between the affective states induced by auditors' interpersonal relationships and the auditors' judgments and assessed whether or not any one of these interpersonal relationships has more influence on auditors' decisions than any other interpersonal relationships. The audit review process should decrease the adverse impact of these affective states on audit judgment; however, the audit manager's review judgments may incorporate his/her subordinate judgments that are communicated via stylized workpapers. Two experiments were conducted to evaluate the impact of the affective states induced by the auditor-auditor and auditor-client relationships and persuasive communication on judgment at different experience levels. Experiment 1 was a 2 (affective states induced by client: positive vs. negative) X 2 (affective states induced by partner: less aggressive practice development vs. more aggressive practice development) between subjects design using audit professionals with an average of less than 1 year of public accounting experience. Experiment 2 is a 2 X 2 X 2 between by within subjects design with the first two factors as the between subjects (same as Experiment 1) and the last factor as the within subjects (absence vs. presence of persuasive communication). In addition, Experiment 2 consists of audit professionals with an average of 8 years of public accounting experience. As predicated, the affective states induced by the client relationship and the partner's expectations collectively impaired audit judgment and when persuasive communication from a subordinate team member was evaluated with the affective states induced by the client relationship and the partner's expectations, a statistically significant three-way interaction was found. The affective states induced by the client relationship consistently influenced audit judgments for both the less experienced auditor and the more experienced auditor.

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