Mitigating the Dilution Effect in Auditors' Judgments Using a Frequency Response Mode

Abstract

This paper investigates the potential of using a frequency response mode to reduce the dilution effect of non-diagnostic evidence on auditors' fraud risk judgments. In two experiments, we test one hypothesis and examine a research question related to the dilution effect where response mode (frequency versus probability) and type of non-diagnostic or irrelevant information are manipulated between-participants. Results of the hypothesis tests show that auditors' fraud risk judgments demonstrate a significantly lower dilution effect when they evaluate diagnostic and non-diagnostic or irrelevant evidence using a frequency response mode, as compared to the probability response mode; this effect is most pronounced when auditors are provided with favorable non-diagnostic or irrelevant evidence. JEL Classifications: M4; M40; M420. Data Availability: Summary data are available from the authors upon request.