Experimental evidence of how prior experience as an auditor influences managers’ strategic reporting decisions

Kendall O. Bowlin (), Jeffrey Hales () and Steven J. Kachelmeier ()
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Kendall O. Bowlin: University of Mississippi
Jeffrey Hales: Georgia Institute of Technology
Steven J. Kachelmeier: University of Texas at Austin

Review of Accounting Studies, 2009, vol. 14, issue 1, No 3, 63-87

Abstract: Abstract We design an experiment to examine the influence of audit experience on subsequent reporting decisions when auditors become managers of audited firms. In contrast to the independence issues that can arise when auditors and their clients are related by prior affiliation, we focus this study on the more common case in which auditors assume subsequent employment with other firms’ clients. In a bi-matrix experimental game that captures key features of the strategic tension between auditors and reporters, we find that reporters who have prior experience as an auditor, particularly the experience of having been a diligent auditor, are more sensitive to large penalties for aggressive reporting than are reporters whose experience is exclusively as a reporter. Our results suggest implications for regulators in predicting the effects of reporting penalties and for firms in considering the effects of CPA experience when hiring for reporting positions.

Keywords: Experimental economics; Reporting; Auditing; Experience; Own-payoff effect; M41; M42; C92 (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/s11142-008-9077-0

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