Contemporary Accounting Research Vol. 35 No. 2 2018
Auditors' Use of Formal Advice from Internal Firm Subject Matter Experts: The Impact of Advice Quality and Advice Awareness on Auditors' Judgments
Abstract
When subject matter experts are consulted during an audit, the quality of the expert's advice depends upon their ability to fully understand and incorporate client‐specific facts into their advice. Public Company Accounting Oversight Board (PCAOB) inspection reports suggest that auditors are neglecting to perform the required work to assess the quality of experts' recommendations. This study examines how characteristics of the audit, notably staffing decisions, can impede auditors' ability to discern advice quality. In an experiment, we examine how receiving advice of different levels of quality (lower or higher incorporation of relevant client facts) and awareness at the planning stage of the use of a subject matter expert (a priori aware or unaware) impacts auditors' effort, utilization of the advice, and judgment accuracy. We find that awareness of an expert being employed led to a social facilitation effect such that auditors who were a priori aware put forth more effort prior to receiving the expert advice and were initially in less agreement with management's aggressive revenue recognition position than auditors who were unaware. Upon receiving the expert advice, auditors who were a priori aware were more accurate than auditors who were unaware. These results should interest both audit regulators and practitioners by demonstrating how the timing and communication of consulting decisions affect auditors' assessments of advice received from subject matter experts.
- DOI
- 10.1111/1911-3846.12399
- Volume
- 35
- Issue
- 2
- Pages
- 980-1003
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref