Prior research demonstrates that forecast optimism is, in part, a consequence of analysts' cognitive reactions to the scenarios managers use to communicate future plans. In two experiments, we examine whether counter-explanation (explaining why managers' plans could fail) reduces scenario-induced optimism. We find that when compared to analysts not asked to generate counter-explanations, analysts who complete the relatively easy task of generating few counter-explanations make less optimistic forecasts, but analysts who complete the relatively difficult task of generating many counter-explanations do not. Results demonstrate the usefulness of a cognitive, theory-based mechanism for reducing forecast optimism and suggest a boundary condition for the use of that mechanism.

Reactions to earnings calls are sensitive to subtle features of managers' speech, but little is known about the effect of nonnative accents in this setting. Nonnative-accented CEOs may avoid holding calls in English for fear of investors' negative stereotypes. However, theory indicates that stereotypes from the CEO position and nonnative accents conflict, and that the process of reconciling conflicting stereotypes requires effortful processing. We use a series of four experiments to test each link of the causal chain that we hypothesize based on this theory. We demonstrate that motivated investors reconcile conflicting stereotypes by inferring exceptional qualities, such as hard work and determination, that positively affect their impressions of nonnative-accented CEOs and, hence, of the company as an investment. We also show that, because bad news stimulates effortful processing, investors receiving bad (versus good) news are more likely to form a positive image of nonnative-accented CEOs and their companies. Data Availability: Contact the authors.

Regulators and researchers provide evidence that auditors' judgment quality is problematic in complex audit tasks. We introduce a framework for improving auditor judgment in these tasks. The framework builds on dual‐process theory to recognize that high‐quality judgment in complex tasks requires that auditors (i) possess the knowledge needed for the task, (ii) recognize the need for analytical (versus heuristic) processing, and (iii) have sufficient cognitive capacity to complete the analytical processing. Based on the framework, we predict that auditors' need for cognition (NFC), a characteristic theoretically linked to recognizing the need for analytical processing, is associated with higher quality complex judgments. Analysis of 11 studies supports this assertion. We demonstrate the usefulness of the framework by predicting and finding that priming auditors with an accuracy goal improves judgments, particularly for lower NFC auditors, who are less likely to spontaneously engage in analytical processing. The framework facilitates systematic development of interventions to improve auditor judgment by highlighting that solutions should address the specific conditions causing judgment problems.

Accounting involves assigning numbers to events — quantifying them. Conventional wisdom holds that putting numbers to an argument enhances its persuasive power. There is, however, little scholarly evidence to support or refute this claim, in accounting or elsewhere. In this paper, we develop an original process‐based model of how quantification influences persuasion. We posit that including a high‐quality quantified analysis in a proposal enhances its persuasive power by increasing both the perceived competence of the proposal preparer and the perceived plausibility that a favorable outcome could occur. Under some conditions, however, quantification also encourages criticism of the details of the proposal, which potentially offsets these effects. We experimentally test implications of our model in a managerial decision setting, investigating conditions in which quantification is more and less likely to result in criticism of the quantified proposal and, thus, less and more likely to be persuasive. We also test the model itself using structural equations methods. Results largely support the model, which should prove of value to researchers interested in the effects of quantification on judgements and to those interested in persuasion.

We experimentally examine the effects of trait professional skepticism on fraud brainstorming performance. We find that groups with a minority, but not a majority, of high trait skeptics develop more fraud ideas than control groups with no high trait skeptics. Mediation analyses indicate that minority high trait skeptic groups also assess higher fraud risk, in part because they consider more fraud ideas. Low trait skeptics who brainstorm in groups with a minority of high trait skeptics tend to view the minority high trait skeptic as the best member of the group because of that member's unique insights. Their individual, post-brainstorming fraud risk assessments remain high, indicating conversion to the minority (skeptical) viewpoint. Our study contributes to the brainstorming literature by highlighting the importance of group composition. It suggests that firms can promote skeptical team judgments by leveraging individuals' high trait skepticism in thoughtfully composed interacting groups.

Junior auditors collect the bulk of audit evidence, yet they do not always speak up to communicate potentially important audit issues. Such inappropriate “voice” decisions can endanger audit quality. We examine whether and how staff auditors influence each other in making voice decisions. First, a survey provides descriptive evidence that staff auditors consult their peers for advice on whether to speak up. Next, two experiments provide evidence that voice advice among peers at the staff level can be problematic. We find that staff auditors consistently underestimate the importance of raising issues compared to their supervisors, and they rely on social cues that are not diagnostic of issue importance in giving voice advice to peers. Finally, we predict and find that staff auditors tend to follow peer advice when it confirms their initial stance, and that an expectation of high (versus low) quality supervisor feedback increases their willingness to speak up. Most importantly, we find that contradictory peer advice only influences staff auditors’ willingness to speak up when leadership feedback is not expected to be of high quality. Together these results indicate that staff auditors seek out and follow voice advice from their peers, but appropriate leadership feedback practices can mitigate the negative impact of peer advice on upward communication.

Auditors are required to raise potential audit issues to their supervisor's attention (i.e., to speak up). Speaking up allows supervisors to adjust audit procedures as needed to protect audit quality. We argue that the act of speaking up may not always be sufficient to protect audit quality— how auditors speak up is critical. Drawing on audit voice theory (AVT), which focuses on whether auditors speak up, we consider the impact of auditors' salient goals on the tactics that auditors use when raising issues. Using a survey, multiple experiments, and an association study, we find that staff auditors with salient public service (vs. self‐serving) goals choose more quality‐enhancing voice tactics when speaking up. Importantly, however, we find that the voice‐related decisions of auditors with salient self‐serving (but not public service) goals respond to rewards for more quality‐enhancing tactics. These results support our theory that auditors approach voice differently depending on their salient goals, and they imply that supervisors can help auditors choose quality‐enhancing voice tactics even when self‐serving goals are salient. Overall, our findings test and extend AVT, identify a potential shortcoming of current audit standards, and suggest ways that firms can improve team communication and audit quality via recruitment strategies, team management practices, and training.

Auditors and regulators have invested heavily in improving audits of estimates in recent years, but problems in this area persist. We examine the causes of these problems and why they persist. To do so, we interview 24 very experienced auditors about how they audit complex accounting estimates such as fair values and impairments and what problems they experience in the process. We find that auditors overwhelmingly choose to audit the details of management's estimate rather than use other allowable approaches. The steps auditors describe and the language they use to describe those steps indicate that they follow a process of verifying individual elements of management's assertions on a piecemeal basis, resulting in overreliance on management's process, rather than engaging in a critical analysis of the overall estimate. The problems that auditors identify are consistent with this view, and include failures to notice inconsistencies among the estimate and other internal data or external conditions and overreliance on specialists to identify, evaluate, and challenge critical assumptions. We interpret these processes and problems using institutional theory and identify two root causes: standards' and firm policies' emphasis on verifying management's model, and audit firms' division of knowledge between auditors and specialists. Institutional theory proposes these conventions arise from firms extending use of procedures that are legitimate in one area (i.e., auditing accounts without significant uncertainty) to a new area (i.e., auditing complex estimates), even though they are likely less effective in the new area. These conventions are reinforced by regulators' method of inspection and by firms' reluctance to change methods without a prompt to change to a clearly better method. We argue that these institutionalized conventions thwart auditors' good‐faith attempts to engage in skeptical analysis of estimates. Thus, audit quality problems are likely to persist.