An Examination of Order Effects in Auditors' Inherent Risk Assessments
Posted: 7 Mar 1997
Date Written: January 1996
Prior studies have reported the presence of order effects (in particular, a recency effect) in a variety of audit tasks. If recency effects are present in auditors' judgments, there may be serious implications for the auditing profession, especially if the audit evidence collected by an auditor during the planning stage of the audit has the potential to influence the auditor's decisions concerning the nature, timing and extent of audit procedures merely on the basis of the order in which the evidence is collected.This study attempts to provide further insights into the issue by examining the occurrence of order effects and their impact on the judgments of auditors who were sufficiently compensated for their time and who had the required years of experience to perform the audit task used in this study. Moreover, although the Belief-Adjustment model's predictions have been applied to a variety of audit tasks, the model has not previously been used to examine the inherent risk task. Seventy auditors completed a case study, which instructed them to determine the risk that there were material errors in the client's financial statements, in the absence of any related internal controls. The ANOVA results revealed that recency effects were not present in the auditors' inherent risk assessments. Thus, their judgments did not appear to be influenced by the order in which audit evidence was evaluated. The results, however, suggest that auditors' judgments of inherent risk may be biased towards conservatism. As recognised in earlier studies, this behavior may mitigate recency biases.
JEL Classification: M40, M49
Suggested Citation: Suggested Citation