Auditor perceptions of prior involvement and reputation threats as antecedents of quality threatening audit behavior

The purpose of this paper is to investigate practicing auditors' beliefs regarding the effect of prior involvement on the occurrence of quality threatening behaviour (QTB) during an audit. The authors examine the extent to which auditors' beliefs about QTB are consistent with the theoretical framework of Kanodia et al., according to which prior involvement in audit work would increase the likelihood of auditors suppressing evidence inconsistent with earlier audit decisions.

The authors conduct an experiment in which auditors assess the likelihood of perceived reputation threats associated with encountering disconfirming evidence late in the audit, and the likelihood that such evidence will be suppressed.

Auditors participating in the study believe that prior involvement will induce a perception of personal reputation threats in an auditor encountering evidence inconsistent with the conclusions of earlier audit work. Participants perceive an auditor with prior involvement in the audit work to be more likely to suppress audit evidence than an auditor with no prior involvement; this effect is largely explained by the personal reputation threats believed to be induced by prior involvement.

The findings provide important information, from the perspective of practicing auditors, about a situational antecedent of QTB that is present on most audit engagements. Prior involvement is perceived by auditors to induce a conflict of interest in reporting troublesome evidence uncovered late in the audit. These perceptions suggest it is important to raise reviewers' awareness of the possibility of undesirable behavior in such situations. Potential limitations of the study relate to generalizability of the results under different levels of misstatement risk and under different environments in audit practice. Also, the authors do not measure auditors' actual behaviour, but their assessment of hypothetical situations and beliefs about others' actions. Future research can examine actual auditor behaviour in the presence of prior involvement.

The paper provides evidence on auditors' beliefs about the effects on QTB of prior involvement, a factor that has not been previously studied in this line of research. The authors show that auditors' beliefs about QTB are consistent with Kanodia et al.'s theoretical framework. The study is the first to measure auditors' assessments of perceived reputation threats and to show their mediating effect on the predicted behavior of audit professionals.