Tracie Majors

Auditing involves activities that psychology research characterizes as requiring self-regulation— such as switching mindsets, complex thinking, and resisting temptations. This line of literature characterizes the phenomenon whereby individuals use self-regulation resources for an action, and then have insufficient resources for a subsequent action requiring self-regulation (as such resources are limited), as depletion. We develop new theory that depletion impairs auditor performance, especially for “good” auditors (those who naturally engage in more effortful processing in complex tasks via their inherent attributes). We conduct two experiments examining how depletion interacts with examples of auditor attributes predictive of more effortful processing—professional identity and trait skepticism. Consistent with predictions, results show that the effects of depletion on performance are amplified at higher levels of the attributes. Specifically, we find that the positive relationships between the auditor attributes and performance on a complex audit task absent depletion (i.e., in the control condition) are eroded when individuals are depleted. Process-model results support our theory that effortful processing mediates the relationships between the attributes and performance and that depletion impairs individuals’ effortful processing, which negatively impacts performance. These findings help explain why “good” auditors sometimes fail to provide effective audits—their performance on complex tasks is limited under depleting conditions.

Evaluations of auditors’ professional judgments by persons outside of audit teams (e.g., PCAOB inspections, AICPA peer reviews, audit firms’ internal quality reviews) are a pervasive means of helping ensure audit quality. We examine how three important psychological factors jointly influence evaluators’ assessments, moderating whether bias and unwarranted inconsistency occur for evaluations of identical, plainly acceptable audit work. We test our theory in an abstract experiment in which we manipulate whether or not the judgments evaluated by participants happen to differ from the judgments they made during an earlier stage of the experiment. We also manipulate the punitiveness of the evaluation approach and measure evaluators’ disposition for wise thinking. Consistent with psychology theory, evaluators exhibit myside bias in that they less favorably assess judgments that differ from their own, relative to the control participants who also provide evaluations for those same judgments. On a more encouraging note, high wise thinkers exhibit less myside bias than low wise thinkers under a more punitive, inspection approach and, unlike low wise thinkers, logically recognize that judgments differing from their own simultaneously can be less reasonable than their own but still of sufficient quality to pass an inspection. Regulatory bodies and audit firms should be interested in these results, as bias and inconsistency for identical, acceptable audit judgments reduce the capacity of these evaluations to advance the public interest by ensuring audit quality.

Employees could respond to impacting a valued, but uncompensated, organizational objective by behaving more or less opportunistically, depending on whether stewardship or justice theory is at play. Stewardship theory implies employees will be less opportunistic due to feeling more psychological ownership over the firm, whereas justice theory implies more opportunism due to feeling unfairly treated. In an experiment with Mechanical Turk participants, we predict and find lower Machiavellians are less opportunistic (on a subsequent budgeting task) when impacting an uncompensated objective, due to elevated psychological ownership. Also as predicted, higher Machiavellians feel less fairly treated when impacting the objective; however, they do not behave more opportunistically. Instead, they are highly opportunistic both when impacting and not impacting the objective. Collectively, our findings suggest that less complete contracts create stewardship benefits for lower Machiavellian employees that translate to less opportunistic behavior, but create a heightened sense of injustice for higher Machiavellians.

Auditors and client managers can reach different conclusions about appropriate estimates due to discretion in GAAP. Managers have incentives to report bias; auditors must balance incentives to challenge potentially biased reporting with pragmatic incentives to maintain client relationships and audit efficiency. We expect managers and auditors will negotiate in line with incentives when they are mentally fresh, but when depleted will shift toward their natural behaviors— predicted by their Dark Triad personalities for managers and by their skeptic versus client service natural dispositions for auditors. We conduct an abstract experiment with incentives whereby students negotiate as managers and auditors. We manipulate depletion and measure traits. Findings support predictions. Higher Dark Triad managers report initial positions with similarly high amounts of bias irrespective of depletion, whereas lower Dark Triads report less bias when depleted. Skeptic auditors negotiate outcomes farther below managers’ initial positions when depleted, consistent with greater challenging. Client service auditors negotiate outcomes that are closer to initial positions when depleted, consistent with greater pragmatic behaviors. Additional analyses on joint outcomes highlight the importance of examining interactive negotiations: depletion leads to less bias for matches of lower Dark Triads with skeptics, and never results in higher bias in other matches, which could be incorrectly inferred from considering auditors in isolation. Supplemental audit partner interviews provide rich and novel insights on depletion in auditing and support our theory-consistent experimental findings as to how auditors’ skeptic versus client service natural dispositions moderate depletion effects.

We experimentally examine whether audit seniors’ use of simple cognitive processes for a complex task is affected by the strength of habits that they developed as staff. A habit is a mental association between a behavior and a specific context. We propose that, for seniors with stronger habits to use simple processes, the typical audit room context automatically activates those processes, making it harder to select the processes that are more effective for a complex task. As predicted, we find that seniors with stronger habits identify fewer issues with a complex estimate than seniors with weaker habits when in the typical context. Seniors with stronger habits perform better in an alternative context that does not activate the simple processes, while those with weaker habits do not. Additional analyses validate that habit strength underlies our results and explore how the audit setting influences the development and enactment of habitual behaviors.