Contrast analysis has become prevalent in experimental accounting research since Buckless and Ravenscroft (1990) introduced it to the accounting literature over 25 years ago. Since its initial introduction, the scope of contrast testing has expanded, yet guidance as to the most appropriate methods of specifying, conducting, interpreting, and exhibiting these tests has not. We survey the use of contrast analysis in the recent literature and propose a three-part testing approach that provides a more comprehensive picture of contrast results. Our approach considers three pieces of complementary evidence: the visual evaluation of fit, traditional significance testing, and quantitative evaluation of the contrast variance residual. Our measure of the contrast variance residual, q2, is proposed for the first time in this work. After proposing our approach, we walk through six common contrast testing scenarios where current practices may fall short and our approach may guide researchers. We extend Buckless and Ravenscroft (1990) and contribute to the accounting research methods literature by documenting current contrast analysis practices that result in elevated Type I error and by proposing a potential solution to mitigate these concerns.

No abstract

We examine whether the effect of mandatory auditor rotation on audit quality depends on the mental frame auditors adopt in evaluating management representations. In practice, auditors can alternately frame their assessments of management representations in terms of their potential dishonesty (what we term skepticism) or potential honesty. Using psychology theory and a laboratory experiment, we predict and find that mandatory rotation improves audit quality when an auditor takes an honesty frame, but that this effect reverses when an auditor takes a skeptical frame. Thus, the benefit of using a skeptical frame occurs when auditors do not rotate, but requiring rotation can reduce audit effort for auditors using a skeptical frame. An implication of our study is that focusing auditors on a skeptical assessment frame rather than mandating auditor rotation may be a less costly way to reduce low-effort audits and aggressive reporting.

No abstract

Prior research shows that an audit supervisor’s active intervention in a subordinate’s judgment distorts that judgment. However, subordinates’ judgments are only one input into audit team judgments. How do supervisors finalize audit team judgments after actively intervening in their subordinates’ judgments? In an experiment using audit teams, supervisors with weaker or stronger goals to reach a client-preferred conclusion either were or were not asked to first actively coach a subordinate’s judgment (i.e., active intervention) before reviewing it and finalizing the audit team’s judgment. Supervisors’ intervention influenced subordinates’ inputs, which, in turn, supervisors incorporated into their final judgments. More interestingly, intervention biased supervisors’ final judgments, controlling for supervisor directional goal strength and for concurrent effects on subordinates’ inputs. However, supervisors distorted their judgments less as they perceived a larger technical knowledge advantage over subordinates. In a second experiment, auditors appear aware of the bias-reducing knowledge advantage effects but unaware of the bias-increasing active intervention effects. We discuss implications for audit team judgments and audit quality control.