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Abstract
Auditors have been shown to subconsciously bias the processing of audit evidence towards the views held by their supervisor, a phenomenon referred to as predecisional distortion (Wilks 2002). Given its subconscious nature, predecisional distortion in an audit setting is of particular concern. Unlike conscious distortion which can be responsive to external interventions such as those aimed at increasing the level of effort applied to the task, predecisional distortion might be difficult to mitigate because it occurs without the awareness of auditors. While predecisional distortion may not be responsive to external interventions, certain environmental factors may decrease or increase the extent of the distortion, thereby improving (or detracting from) the quality of audit judgments. This dissertation reports on two studies examining one such environmental factor, namely, the hierarchical distance between the supervisor and the subordinate auditor making the judgment.
Study One examines the impact of hierarchical distance on the level of predecisional distortion. Two aspects of hierarchical distance are examined, namely, the position of the auditor’s supervisor (hierarchical status) and the extent to which the auditor’s national culture emphasises hierarchical authority (hierarchical culture). When analysing data collected from auditors employed in a single Big 4 international practice in Australia and South Korea, predecisional distortion was found to be a phenomenon confined to superior-subordinate relationships, suggesting that hierarchical distance is a necessary condition of predecisional distortion. Unexpectedly, the level of distortion exhibited by the South Korean auditors working in a strong hierarchical culture was less than that exhibited by the Australian auditors working in a weak hierarchical culture.
Interviews conducted with a number of participants following the conduct of Study One suggested that the South Korean auditors might perceive their supervisors to have lower levels of expertise than is the case for Australian auditors. Study Two investigates whether the unexpectedly low levels of predecisional distortion exhibited by South Korean auditors can be explained by variations in the perceived expertise of the supervisor. The results revealed that predecisional distortion is a phenomenon restricted to situations where there is no information that suggests the supervisor lacks expertise. Predecisional distortion was most pronounced when there was clear evidence that the supervisor was an expert. Further, where there was an absence of information about the supervisor’s expertise, predecisional distortion was most pronounced when the supervisor’s view encouraged a more conservative audit approach.
The results from the two studies reported on in this dissertation highlight that while predecisional distortion is a pervasive phenomenon in audit settings, the consequences of predecisional distortion of audit evidence may not be as negative as previously thought, and in fact, may even facilitate audit efficiency.