Are engagement quality reviews really objective?

Ambrose Jones, Carolyn Strand Norman, Jacob M. Rose

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We investigate auditor objectivity as it relates to engagement quality reviews by examining whether engagement quality reviewers (EQRs) exhibit lower levels of objectivity when they have administrative, economic, or social ties with the audit engagement partner. Motivated reasoning theory suggests that EQRs with ties to the engagement partner will reach less conservative conclusions and be more willing to accept an engagement partner's decision relative to reviewers who have no connections with the engagement partner. We conduct an experiment where EQRs must review a decision by an engagement partner related to a contingent liability. Results suggest that engagement quality reviews are an effective mechanism for reducing the effects of engagement partner biases to accept client-favored accounting choices. Participants with ties to the engagement partner (i.e., from the same office) and without ties (i.e., from the national office) both challenged the decision of the engagement partner and recommended disclosure of a contingent liability, which client management opposed. We also find an interaction of ties with the engagement partner and the probability of the contingent liability. National office EQRs were less likely to decide that disclosure was necessary than were local office partners when the probability of the contingent liability was low. With regard to the need to recognize a liability, EQRs with and without ties to the engagement partner concurred with the decision of the engagement partner.

Original languageEnglish
Title of host publicationAdvances in Accounting Behavioral Research
EditorsVicky Arnold, Donna Bobek, Douglas Clinton, Anne Lillis, Robin Roberts, Chris Wolfe, Sally Wright
Place of PublicationBingley UK
PublisherEmerald Group Publishing Limited
Number of pages22
ISBN (Electronic)9781780520872
ISBN (Print)9781780520865
Publication statusPublished - 2011
Externally publishedYes

Publication series

NameAdvances in Accounting Behavioral Research
ISSN (Print)1475-1488

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