Auditor independence, conflict of interest, and the unconscious intrusion of bias
By: Don A. Moore, George Loewenstein, Lloyd Tanlu, Max H. Bazerman
Contributors: Bazerman, Max H.; Harvard Business School. Division of Research; Tanlu, Lloyd; Loewenstein, George
Series: Working paper / Division of Research, Harvard Business School -- 03-116; Working paper (Harvard Business School. Division of Research) -- 03-116
Publisher: Division of Research, Harvard Business School
Published: 2003
Place of publication: Boston]
Language: eng
Number of pages: 48
Description: Information about the financial health of public companies provided by auditors ideally allows investors to make informed decisions and enhances the efficiency of financial markets. However, under the current system auditors are hired and fired by the companies they audit, which introduces incentives for biases that favor the audited companies. Three experiments demonstrate bias in auditors' judgments, and show that these biases are not easily corrected because auditors are not fully aware of them. The first experiment demonstrates that the judgments of professional auditors tend to be biased in favor of their clients. The second and third experiments explore more closely the psychological processes underlying the bias. The results suggest that the closeness of the relationship between auditor and client may have a particularly strong biasing influence on auditors' private judgments.
Notes: Includes bibliographical references.