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Do “Superstar” CEOs Impair Auditors’ Independence and Professional Skepticism?

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Date Issued:
2016
Summary:
The study examines the potential threat to an auditor’s independence in fact which may result from the extraordinarily favorable personal reputation (superstar status) of an audit client’s CEO This potential threat to an auditors’ independence is the result of a halo effect bias which can distort an individual’s judgment and behavior Accounting firms use a business risk audit approach which involves conducting a strategic risk assessment which assesses the overall threats to the business model of an audit client Prior research has demonstrated that the strategic risk assessment can bias the judgment of auditors pertaining to financial account level risk assessments For example, the Bernie Madoff Ponzi scheme demonstrated how an extraordinarily well respected individual with superstar status can distort the judgment of knowledgeable and normally skeptical individuals An experiment was conducted to examine the potential threat of a superstar CEO on an auditor’s independence as demonstrated by the ability to distort the judgment of the auditor during the performance of the strategic risk assessment In addition, the experiment was designed to examine whether the halo cognitive bias can lessen the impact that an auditor’s professional skepticism has on his or her judgment and behavior during the audit of a client’s financial statement Unlike other studies which have sought only to demonstrate that a cognitive bias exist which impairs auditor judgment; the study also examined whether the influence of a halo effect bias can be mitigated by the formal rating of audit evidence in a similar manner that was used by Embu and Finley (1977) to successfully mitigate a framing effect The experiment did not support the main hypothesis of the study that auditors assess the strategic risk at a lower risk level for firms that employ a superstar CEO than for those whom employ a non-superstar CEO This result may primarily be due to the inability of the scenario used in the experiment to sufficiently differentiate the characteristics of the superstar and non-superstar CEO Without establishing that the participants’ judgment was being distorted by a superstar CEO; the other hypotheses which involved testing a debiasing method to mitigate the halo effect caused by a superstar CEO and investigating whether a halo effect reduces the impact that auditors’ trait skepticism level has on their judgment could not be properly tested
Title: Do “Superstar” CEOs Impair Auditors’ Independence and Professional Skepticism?.
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Name(s): Harvin, Oscar, author
Higgs, Julia, Thesis advisor
Florida Atlantic University, Degree grantor
College of Business
School of Accounting
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Created: 2016
Date Issued: 2016
Publisher: Florida Atlantic University
Place of Publication: Boca Raton, Fla
Physical Form: application/pdf
Extent: 80 p
Language(s): English
Summary: The study examines the potential threat to an auditor’s independence in fact which may result from the extraordinarily favorable personal reputation (superstar status) of an audit client’s CEO This potential threat to an auditors’ independence is the result of a halo effect bias which can distort an individual’s judgment and behavior Accounting firms use a business risk audit approach which involves conducting a strategic risk assessment which assesses the overall threats to the business model of an audit client Prior research has demonstrated that the strategic risk assessment can bias the judgment of auditors pertaining to financial account level risk assessments For example, the Bernie Madoff Ponzi scheme demonstrated how an extraordinarily well respected individual with superstar status can distort the judgment of knowledgeable and normally skeptical individuals An experiment was conducted to examine the potential threat of a superstar CEO on an auditor’s independence as demonstrated by the ability to distort the judgment of the auditor during the performance of the strategic risk assessment In addition, the experiment was designed to examine whether the halo cognitive bias can lessen the impact that an auditor’s professional skepticism has on his or her judgment and behavior during the audit of a client’s financial statement Unlike other studies which have sought only to demonstrate that a cognitive bias exist which impairs auditor judgment; the study also examined whether the influence of a halo effect bias can be mitigated by the formal rating of audit evidence in a similar manner that was used by Embu and Finley (1977) to successfully mitigate a framing effect The experiment did not support the main hypothesis of the study that auditors assess the strategic risk at a lower risk level for firms that employ a superstar CEO than for those whom employ a non-superstar CEO This result may primarily be due to the inability of the scenario used in the experiment to sufficiently differentiate the characteristics of the superstar and non-superstar CEO Without establishing that the participants’ judgment was being distorted by a superstar CEO; the other hypotheses which involved testing a debiasing method to mitigate the halo effect caused by a superstar CEO and investigating whether a halo effect reduces the impact that auditors’ trait skepticism level has on their judgment could not be properly tested
Identifier: FA00004771 (IID)
Degree granted: Dissertation (PhD)--Florida Atlantic University, 2016
Collection: FAU Electronic Theses and Dissertations Collection
Note(s): Includes bibliography
Subject(s): Chief executive officers--Professional ethics
Accounting--Moral and ethical aspects
Accountants--Professional ethics
Auditors--Psychology
Behaviorism (Psychology)
Industrial management
Held by: Florida Atlantic University Libraries
Sublocation: Digital Library
Persistent Link to This Record: http://purl.flvc.org/fau/fd/FA00004771
Use and Reproduction: Copyright © is held by the author with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder
Use and Reproduction: http://rightsstatements.org/vocab/InC/1.0/
Host Institution: FAU
Is Part of Series: Florida Atlantic University Digital Library Collections.