The effect of performance feedback and client importance on auditors' self‐ and public‐focused ethical judgments

The purpose of this paper is to investigate the effect of performance feedback and client importance on auditors' self‐ and public‐focused ethical judgments.

An experiment is conducted in which 71 auditors are assigned to one of four conditions created by fully crossing performance feedback (positive and negative) and client importance (high and low).

Consistent with expectations, auditors who receive positive (negative) feedback make more (less) ethical judgments in a self‐focused task (a judgment that produces consequences that are relevant for the auditor). Auditors also make more (less) ethical judgments in a public‐focused task (a judgment that has consequences for both the auditor and the public) when auditing a less (more) important client. Finally, auditors who receive positive feedback and audit a less important client make more ethical judgments in both tasks than all other auditors.

These findings suggest that auditors are susceptible to pressures from negative feedback and client importance, even in situations where their decisions will have public consequences, despite regulatory changes intended to enhance audit quality.

This is the first paper that provides evidence that different sources of pressure (performance feedback and client importance) differentially affect ethical tasks differing in decision consequences (self‐ and public‐focused). Such evidence suggests the importance of matching pressure source to ethical task type.