Can auditors be independent? – Experimental evidence on the effects of client type

Recent regulatory initiatives stress that an independent oversight board, rather than the management board, should be the client of the auditor. In an experiment, we test whether the type of client affects auditors’ independence. Unique features of the German institutional setting enable us to realistically vary the type of auditors’ client as our treatment variable: we portray the client either as the management preferring aggressive accounting or the oversight board preferring conservative accounting. We measure auditors’ perceived client retention incentives and accountability pressure in a post-experiment questionnaire to capture potential threats to independence. We find that the type of auditors’ client affects auditors’ behaviour contingent on the degree of the perceived threats to independence. Our findings imply that both client retention incentives and accountability pressure represent distinctive threats to auditors’ independence and that the effectiveness of an oversight board in enhancing auditors’ independence depends on the underlying threat

Can word associations and affect be used as indicators of differentiation and consolidation in decision making?

21 pagesTwo studies investigated how free associations to decision alternatives could be used to describe decision processes. Choices between San Francisco and San Diego as a vacation city were investigated in the first study with US participants. The participants were asked to list any association that occurred to them while thinking about each of the cities in turn. After this, the attractiveness values of these associations were elicited from each individual. Half of the subjects gave the associations before the decision and half after having made their decisions. In congruence with Differentiation and Consolidation theory (Svenson, 1996), the attractiveness values of the associations were more supportive of the chosen alternative after the decision than before primarily on more important attributes. The results also showed that a significant number of associations were neutral and had no affective positive or negative value. The participants in the second very similar study were also asked to rate their immediate holistic/overall emotional reactions to each of the vacation cities (in this case Paris and Rome with Swedish subjects) before the start of the experiment and the associations. After having given their associations, rated them and made their decisions, the participants were asked to go back to their earlier attractiveness ratings and judge the strengths of the emotional/affect and cognitive/rational value components of each of the earlier associations. The results replicated the results from the first study in that the average rated attractiveness of the associations to a chosen alternative was stronger after a decision than before. However, the change was smaller than in Study 1, which was interpreted as a possible result of the initial holistic associations given in Study 2. It was concluded that the technique of free associations is a valuable tool in process studies of decision making, here based on the Diff Con theoretical framework