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Defying Conventional Wisdom: The More You Identify with a Client, the More Skeptical You Are

May 10, 2018

“Revolving door hires,” when an employee of an accounting firm leaves his or her position and move to work at a client company, are relatively prevalent in the accounting industry.

“In accounting, it’s quite common for people to work for one of the big four CPA firms, then at some point, move on from the firm and into some kind of industry position,” Owen Brown, assistant professor of Accounting, said. “I think it’s a unique context to accounting. I don’t think there are a lot of other settings where there is a high prevalence of people working at one place and moving on and keeping that employment connection.”

The concern in these instances is what happens when an auditor performs an audit and connects with the client because they both worked at the same firm. This alumni affiliation could affect how well an auditor does his or her job.

“This study is looking at social bonds that could develop between an auditor and the client,” Brown said. “Audit standards require that auditors be independent from the client and exhibit professional skepticism when performing the audit. You should conduct the audit with an inquisitive mind, being critical in the evaluation of the work they do.”

In the article, co-authored with his former dissertation adviser at Virginia Tech University Sudip Bhattacharjee, the duo explored the concern that alumni affiliation negatively affects auditor skepticism. The article, "The Impact of Management Alumni Affiliation and Persuasion Tactics on Auditors’ Internal Control Judgments," was published in The Accounting Review.

“Prior research has looked at potential threats to either independence or skepticism of the auditor,” Brown said. “We focus on potential social bonds and when the auditor may identify more with the client. Traditional wisdom would say the more connected I feel to the client, the less skeptical I’m going to be—that I’m just going to be naturally more trusting. It makes these kind of affiliations concerning.”

Using data collected through an experiment at one of the big four accounting firms, the study found alumni affiliation does increase auditor identification, how much they feel connected with the client, but it also increases their skepticism.

“We find that the alumni affiliation does increase auditor identification with the client. That part of conventional wisdom is true,” he said. “However, contrary to concerns expressed in prior accounting research, we find that if an auditor has an alumni affiliation with the client manager, those auditors are more likely to pick up on persuasion tactics. If you don’t have that connection, the auditors are less likely to pick up on that point of deception. A social bond could actually heighten how much focus and attentiveness an auditor gives to a client, which might result in an auditor having greater skepticism. We view that as evidence of being more skeptical.”

The research indicates it is important to note alumni affiliation, but it’s not as detrimental as auditors may have feared. Brown said this phenomenon generalizes to other areas of identification too (i.e., if an auditor and client are in the same stage of life, they go to the same church, etc.). Commonalities could stimulate identification between auditors and clients. If an auditor feels more connected and more attentive, he or she may be more trusting on the surface, but more likely to pick up on inconsistencies. Brown reiterates, that skepticism is “critical in an audit environment.”

Turning conventional wisdom on its head, this article contributes to the mounting body research Brown has produced using psychology literature to understand and, hopefully, improve auditor judgment and consequently, audit quality.

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