The Effects of Auditors' Accessibility to "Tone at the Top'' Knowledge on Audit Judgments

This study examines how external auditors' accessibility to "tone at the top'' knowledge impacts subsequent audit judgments. To examine this relationship, a decision aid is investigated that differentially facilitates the auditors' retrieval of "tone at the top'' evidence from memory. Results of an experiment indicate that, holding the client's "tone at the top'' constant, the structure of a control environment decision aid influences the auditors' mental representation of the "tone at the top.'' Further, favorable "tone at the top'' mental representations transfer to induce relatively favorable control environment and fraud risk assessments, and greater reliance on management's explanation for variances detected in analytical procedures. Mediation analyses identify the control environment assessment as a mediator between the influenced mental representation and the subsequent fraud risk and analytical procedure judgments. The results of the paper underscore the importance of how auditors develop their "tone at the top'' mental representations, the influence of these mental representations on subsequent audit judgments, and the stage in the audit process where interventions can improve audit quality.