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An International Meeting of American Accounting
Association
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The Cascading of Contrast Effects on Auditors’ Judgments in Multiple Client Audit Environments |
Sudip Bhattacharjee
Virginia Tech
Mario Maletta
Northeastern University
Kimberly K. Moreno
University of Massachusetts at Amherst
Abstract: This study demonstrates that auditors are susceptible to contrast effects where judgments made on a client are affected by comparisons with information encountered from a previous client. Auditors assessing the internal audit quality of a target client after evaluating a prior client with a strong (weak) internal audit function rated the quality of the target client’s internal audit function as being significantly lower (higher) in quality than auditors who do not receive a prior client for evaluation. In addition, we extend prior psychology and accounting research by demonstrating that the strength of the contrast effect in the initial judgment cascades over to influence related subsequent judgments for which no information is available to make comparisons. We find that the strength of the contrast effect between the internal audit quality assessment for the target and the prior client influences subsequent judgments pertaining to internal audit usage and inventory obsolescence.