The Interplay of Interpersonal Affect and Source Reliability on Auditors’ Inventory Judgments*

The Interplay of Interpersonal Affect and Source Reliability

on Auditors’ Inventory Judgments*

SUDIP BHATTACHARJEE, Virginia Tech

KIMBERLY K. MORENO, Northeastern University

TRACEY RILEY, Suffolk University

1. Introduction

Auditors’ evaluation of information from management is an important source of auditevidence (Public Company Auditing Oversight Board [PCAOB] 2004). The reliability ofthe source is an important aspect of persuasion because the inferential value of the evi-dence must be considered in light of its source (Hirst 1994). Accounting research hasexamined auditors’ sensitivity to source reliability and, in general, finds that auditors placemore weight on information received from more competent, objective, and higher integritysources (e.g., Kaplan, O’Donnell, and Arel 2008).

However, persuasion research in psychology notes that interpersonal affect is anothersource characteristic that can influence the persuasiveness of evidence (Petty and Cacioppo1986). Interpersonal affect is likely to be a prevalent source factor in the auditing domainsince interactions between auditors and clients constitute a key mechanism by which auditevidence is gathered (American Institute of Certified Public Accountants 2007) and theseinteractions are likely to lead to emotional reactions. In a recent review, Nelson and Tan(2005) state that a notable omission in auditing research is examining how emotions gener-ated during interpersonal contact can influence auditors’ performance. Research in nonac-counting contexts has demonstrated that interpersonal affect toward the source impactspersuasion where positive emotions toward the source can lead to more favorable attitudesand more persuasion than negative emotions (Petty and Brinol 2008). Unlike other sourcecharacteristics investigated in prior audit research, personality-based interpersonal affectcan be an apparently irrelevant source characteristic that may inappropriately impact audi-tors’ judgments about source competence. While the role of affect in other accountingtasks has been supported (Kadous 2001; Kida, Moreno, and Smith 2001; Moreno, Kida,and Smith 2002), little research has examined the impact of emotions on the persuasive-ness of audit evidence. The goal of the current study is to examine when the irrelevant per-sonality-based source characteristic, interpersonal affect, impacts auditors’ sensitivity tothe relevant source characteristic, client competence, to influence persuasion. This issue isimportant because auditors’ accurate assessment of source reliability is critical to the effec-tiveness of the audit (Hirst 1994). It is therefore important to understand whether irrele-vant source factors can impact persuasion on their own, or, more importantly, how theymay combine with known source characteristics like competence and objectivity to influ-ence audit judgment.

Our theoretical predictions are guided by the Elaboration Likelihood Model (ELM),which indicates that individuals will be less motivated to think about information andmore likely to rely on heuristic cues (such as affect) when receiving information from alower competence source than when receiving information from a higher competence

* Accepted by Hun-Tong Tan. We would like to thank Charles Bame-Aldred, two anonymous reviewers, and

associate editor Hun-Tong Tan for their helpful comments.

Contemporary Accounting Research Vol. XX No. X (X X) pp. 1–22 � CAAA

doi:10.1111/j.1911-3846.2011.01139.x

source (Chaiken and Maheswaran 1994; Booth-Butterfield and Gutowsi 1993; Finucane,Alhakami, Slovic, and Johnson 2000). Given prior research which indicates a sourcecompetence effect where a lower competence source is less persuasive than a higher compe-tence source (Joyce and Biddle 1981), this suggests that negative affect will magnify thesource competence effect (because the nonpersuasiveness of a lower competence source isheightened), and positive affect will reduce the source competence effect (because the per-suasiveness of the lower competence source is enhanced).

To address our research question, we conducted an experiment in which 174 auditorsresponded to an inventory obsolescence task where interpersonal affect toward the client(positive, negative, and neutral) and client competence (higher and lower competence) weremanipulated. When auditors had a negative affective reaction toward a lower competenceclient, they assessed higher obsolescence risk, and documented more net items indicative ofincreased obsolescence, than when they had a negative affective reaction towards a highercompetence client. The likelihood ratings and documentation of the negative affect lowercompetence condition were indicative of higher inventory obsolescence than a comparableneutral affect lower competence condition. Conversely, the ratings and documentation ofthe negative affect higher competence condition were similar to the ratings of a neutralaffect higher competence condition. These findings have efficiency implications as auditorsmay do more testing for a lower competence negative affect client than a comparable cli-ent toward whom they have no interpersonal reaction.

When auditors had a positive affective reaction toward a lower competence client, theyrated the likelihood of inventory obsolescence similar to auditors who received informa-tion from a positive affect higher competence client. Thus, the source competence effect iseliminated in a positive affect condition. In addition, positive affect led to more workpaperdocumentation indicative of lower obsolescence risk for the lower versus higher compe-tence sources. In fact, the positive affect lower competence group’s ratings and documenta-tion were more indicative of decreased obsolescence than a comparable lower competenceneutral affect group, while the higher competence positive and neutral affect groups hadsimilar ratings and documentation. These findings have potential effectiveness implications,because when source competence was lower auditors processed heuristically such that theirpositive interpersonal emotional reactions resulted in similar obsolescence judgments to ahigher competence source.

Prior auditing research generally indicates that auditors place more weight on informa-tion received from a higher rather than a lower competence source. Our results indicatethat interpersonal affect toward the client can change this often reported behavior, undercertain conditions. The persuasiveness of a lower competence source was further dimin-ished when auditors had a negative affective reaction. On the other hand, auditors’ sensi-tivity to a lower competence source was reduced when they received information from aclient towards whom they had a positive affective reaction such that the information froma lower and higher competence source was viewed similarly. Because auditors’ judgmentsand workpaper documentation are used by audit superiors in subsequent decision making,these findings have implications for practice. These results suggest that training auditorson how their interpersonal interactions with their audit clients can influence their judg-ments may be warranted. Training on emotional competence (i.e., the ability to monitor,use, and manage information from one’s own and others’ emotions) is a widespread andgrowing industry with more than $1 billion annually spent in the United States (DeLor-enzo, Luskin, and Robins 2010). While emotions are fundamental to work, learning howto manage emotions and manage relationships is a critical aspect to decision making(Damasio 1994). Such training could sensitize auditors to recognize and manage the differ-ent affective reactions they may experience when dealing with clients who may also differon other dimensions such as source competence. Our results also add to the growing body

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of accounting research on affect by demonstrating the boundaries of affect’s influence ondecision making.

2. Literature review

Auditors’ sensitivity to source reliability

Source reliability research in auditing has primarily focused on two attributes of reliability— competence and objectivity (e.g., Bamber 1983; Rebele, Heintz, and Briden 1988; Kne-chel and Messier 1990; Anderson, Koonce, and Marchant 1994; Reimers and Fennema1999; Hirst 1994). Findings suggest that auditors are indeed sensitive to the competence ofthe source, placing more weight on more competent sources of information. Results con-cerning auditors’ sensitivity to objectivity are more conditional. For example, Joyce andBiddle (1981) found that auditors were only sensitive to source objectivity when it wasmade particularly salient in a within-subject design.1 Hirst (1994) found that objectivitywas only significant when competence was high. In general, the prior research has demon-strated auditors’ sensitivity to the competence, objectivity, and trustworthiness of clientmanagement, outside parties, and internal auditors.

Importantly, psychology research recognizes that the persuasiveness of informationinvolves a much more complex process likely to be affected by attributes of the sourcebeyond competence and objectivity, as well as attributes of the message and the recipient(Pornpitakpan 2004). While auditing research has begun to examine how the attributes ofthe recipient as well as the message can influence auditors’ sensitivity to the source (e.g.,Haynes 1999; Kaplan et al. 2008), little auditing research to date has examined othersource factors besides objectivity, competence, and trustworthiness that can impact auditorpersuasion. While source reliability factors have been shown to impact audit decision mak-ing, it is an empirical question if other source factors that exist in the audit environmentcan influence when variables like competence and objectivity will have a greater or a lesserinfluence on audit judgments.

The role of interpersonal affect in persuasion

We propose that the ELM, a predominant theory in persuasive communications, providesa useful framework to examine the interactive effect of multiple source characteristics onaudit persuasion (Petty and Cacioppo 1986). The ELM is a dual process model which pro-poses that there are two alternative paths to persuasion: thoughtful persuasion is referredto as following the central route, whereas low-thought persuasion is said to follow theperipheral route. The central route involves effortful message elaboration, while theperipheral route involves reliance on simple cues in the persuasion context, rather than themessage, in processing arguments.2 The ELM model has been used as a theoretical frame-work in the audit domain to characterize the audit review process and to investigate audi-tors’ sensitivity to source integrity (Rich et al. 1997; Rich 2004; Gibbins and Trotman2002; Goodwin 1999).

1. It should be noted that it is often difficult to trigger source credibility effects in experimental settings

unless the manipulation of source credibility is made explicit to auditors.

2. It is important to note that this concept of peripheral and central processing represents a continuum along

which decision makers’ processing will fall. In order to process using the central route, it is necessary that

the individual be both able and motivated to process the message. In the audit domain, motivation and

ability are likely to be high. Therefore, auditors are likely to be processing at the central processing end of

the continuum (Rich, Solomon, and Trotman 1997). We propose that when auditors are more centrally

processing they are relying primarily on the message information from the source (i.e., audit evidence).

Alternatively, when auditors are processing more peripherally, they may rely on simple cues that can

impart some bias in their ongoing processing.

Interpersonal Affect and Source Reliability 3


Importantly, the ELM proposes, and psychology research supports, the role thatnumerous source characteristics can have on persuasion, beyond competence, objectivity,and trustworthiness. A prevalent source characteristic that has received little attention inthe auditing domain is the interpersonal affect toward the source ⁄ client or client likabil-ity. Emotions become associated with the source (e.g., the audit client) and can serve asan affect heuristic (Forgas 1995; Slovic, Finucane, Peters, and Macgregor 2002). Positiveemotions toward the source will lead to more favorable attitudes than negative emotionstoward the source (Petty, Schumann, Richman, and Strathman 1993). This is consistentwith the idea proposed by the ELM that variables can influence persuasion by affectingthe direction or valence of thinking. That is, decision makers will attend to informationthat is consistent with their interpersonal affect (Petty and Brinol 2008).

While little research has examined the impact of emotions on the persuasiveness ofaudit evidence, the role of affect in other accounting tasks has been supported. For exam-ple, accounting research has found that affect can impact juror decision making and man-agers’ capital budgeting decisions (Kadous 2001; Kida et al. 2001; Moreno et al. 2002).Most closely related to the current research, in the auditing domain, irrelevant interper-sonal affect has been found to impact the judgments of less experienced but not moreexperienced auditors (Bhattacharjee and Moreno 2002). Drawing on the tacit knowledgeliterature, this study found that the inventory obsolescence judgments of less experiencedauditors were significantly higher when they were provided with negative affective infor-mation on a client than when no such information was provided; no such differences werefound for the more experienced auditors. Taken together, prior research indicates thataffect can have an impact on accounting decision making. Little is known about the condi-tions that exist in the accounting environment that will impact when affect will or will notinfluence judgments.

The interplay of interpersonal affect and source competence

The question of how interpersonal affect will interact with source competence to impactauditor persuasion can be addressed by considering research on affect and source compe-tence. The affect as information theory postulates that individuals use both affect and cog-nition to make judgments; in effect, decision making involves a balance between the two(Schwarz 1990). Finucane et al. (2000) propose that individuals use an affect heuristic as acue for certain judgments when a more efficient strategy of judgment is needed. Whileaffect is important in judgment, the relative influence of both affect and cognition on judg-ment and decision making will depend upon the characteristics of the decision maker, taskdemands, and the environment.

Importantly, persuasion research suggests that source competence levels will influencewhether decision makers will be more or less likely to rely on heuristics. Numerous stud-ies in psychology on persuasion have suggested that individuals processing an ambiguousmessage will process systematically (heuristically) when evidence is presented by a sourceof high (low) credibility (e.g., Chaiken and Maheswaran 1994; Booth-Butterfield and Gu-towsi 1993; Heesacker, Petty, and Cacioppo 1983). In effect, this research suggests thatdecision makers will be more motivated to think about information from a high crediblesource than from a low credible source. For example, Chaiken and Maheswaran (1994)found that when participants were highly motivated and read an ambiguous message,they processed systematically when the message was delivered by a highly crediblesource, yet heuristically when the message was delivered by a source of low credibility.Similarly, Booth-Butterfield and Gutowsi (1993) found that when a task was difficult toprocess, participants who heard a message delivered by a source of low credibility pro-cessed heuristically. However, participants who heard a message delivered by a highlycredible source used systematic processing and attended to argument quality.



Based on research on persuasion and the affect heuristic we propose that, when audi-tors receive information from a lower competence client source, there will be ambiguityregarding the reliability of the information. As a result, auditors’ judgments may be influ-enced by other information (Rich et al. 1997). As noted earlier, decision makers are morelikely to rely on an affect heuristic when confronted with a complex or ambiguous task.Therefore, we propose that when auditors receive information from a lower competencesource, they will be more influenced by heuristic cues like their interpersonal emotionalreaction to the client source. Auditors will have a propensity to attend to information thatis consistent with their interpersonal affective reaction impacting both their judgment andworkpaper documentation.

Alternatively, we expect that auditors who receive information from a higher compe-tence client source will process systematically, relying primarily on the message informa-tion from the source. When receiving information from a higher competence client source,there will be little ambiguity regarding the reliability of the information and little reasonfor auditors to rely on other heuristic cues like interpersonal affect. Therefore, regardlessof the type of affect towards the client, auditors in the high competence conditions willattend to the information similarly.

It is important to consider these psychology findings and our predictions in thecontext of the environmental differences found in an auditing setting. That is, givenauditors’ loss function, sensitivity to risk and professional standards, one could arguethat auditors may be more inclined to systematically process information from a lowercompetence source than a higher competence source. Information from a higher compe-tence source may have a lower likelihood of misstatement and lead to lower profes-sional skepticism and more peripheral processing. Information from a lower competencesource may have more misstatements and may lead auditors to more carefully scrutinizethe information, leading to more systematic processing. Consider, however, that theinformation processing differences found in psychology for sources of various compe-tence levels are based on the ELM, and prior auditing research has found support forthe ELM and other persuasion findings (Goodwin 1999; Rich 2004; Salterio and Koo-nce 1997; Kadous, Koonce, and Towry 2005). Therefore, prior audit research suggeststhat the predictions from ELM and other persuasion theories are likely to hold in anauditing setting.

We propose that when auditors have a negative affective reaction and source compe-tence is lower, auditors will process heuristically with their negative affective reactions to alower competence source influencing their judgments and work paper documentation todiverge beyond what is expected from a simple cognitive evaluation of the lower sourcecompetence. In the absence of any affective reaction towards the client (i.e., neutral affect),it is expected that auditors will be less persuaded by information from a lower competencesource than a higher competence source. Auditors’ negative affective reaction to the lowercompetence source will widen the differences typically found between lower and highercompetence sources. As such, auditors will be less persuaded by a lower competencesource that they have a negative affective reaction to than a neutral affective reaction. Nosuch differences between negative and neutral affect clients are expected when clientcompetence is higher. The following hypotheses are proposed:

Hypothesis 1. Client competence interacts with interpersonal affect toward the clientsuch that:

(a) when auditors have a negative interpersonal affective reaction to a client, audi-tors’ assessments of inventory obsolescence will be higher for a lower compe-tence than a higher competence client;



(b) when client competence is lower, auditors’ assessments of inventory obsolescencewill be higher when auditors have a negative rather than a neutral interpersonalaffective reaction toward a client. When client competence is higher, there willbe no differences in assessments when auditors have a negative rather than aneutral affective reaction toward a client;

(c) when auditors have a negative interpersonal affective reaction toward a client,auditors will document more negative than positive inventory obsolescence itemsfor a lower competence than a higher competence client; and

(d) when client competence is lower, auditors will document more negative thanpositive inventory obsolescence items when auditors have a negative rather thana neutral affective reaction toward a client. When client competence is higher,there will be no differences in documentation when auditors have a negativerather than a neutral affective reaction toward a client.

In Hypothesis 1, a negative affect heuristic magnifies the effect of source competence(i.e., leads to more negative judgments or lower persuasiveness for a lower competencesource than a higher competence source) in that both the affect heuristic and sourcecompetence effect lead to the same directional effect. In contrast, with positive affect, theaffect heuristic and source competence effect lead to opposite directional effects. Specifi-cally, our prior discussion suggests that positive affect will positively enhance the persua-siveness of lower competence sources while there will be little effect on the persuasivenessof higher competence sources. On the other hand, the source competence literature indi-cates that lower competence sources will be less persuasive and judged more negativelythan higher competence sources (Anderson et al. 1994; Hirst 1994). Thus, while theimpact of positive affect on auditors’ sensitivity to source competence is expected to begreater for lower competence sources than higher competence sources, the overall magni-tude of the impact of positive affect is difficult to predict. On the one hand, auditors’sensitivity to source competence could be so strong that positive affect will not signifi-cantly reduce this sensitivity. In other words, when auditors have a positive affectivereaction to a client, auditors’ assessments of inventory obsolescence will still be higherwhen a client is of lower competence than higher competence. Auditors’ sensitivity tosource competence will dominate over their interpersonal affect toward the client.

On the other hand, we could have a situation where positive affect has a greater influ-ence on persuasion than source competence sensitivity. This prediction suggests that affect(i.e., interpersonal affect toward the client) will have a greater influence than cognition(i.e., source competence information) in the lower competence condition. The predictionthat affective responses to the situation may diverge from cognitive evaluations and mayhave a different and greater impact on behavior than do cognitive evaluations is consistentwith prior research in accounting and psychology. That is, research suggests that decisionmakers’ affective reactions can lead to what would appear to be suboptimal judgmentsfrom a cognitive point of view (e.g., Bateman, Dent, Peters, Slovic, and Starmer 2007;Hsee and Kunreuther 2000; Moreno et al. 2002; Shiv and Fedorikhin 1999). For example,Bateman et al. (2007) found that decision makers’ positive affective reactions to gamblesled them to view an economically inferior gamble as more attractive and to more likelyaccept this inferior gamble than an economically superior gamble to which they had a lessfavorable affective reaction. In other words, they found that a positive affect economically(cognitively) inferior gamble was chosen more than a neutral affect economically (cogni-tively) superior gamble. Similar results have been found in marketing and insurance deci-sion contexts (Hsee and Kunreuther 2000; Shiv and Fedorikhin 1999). In an accountingcontext, Moreno et al. (2002) found that managers were more likely to choose an econom-ically inferior capital budgeting option that they had a positive affective reaction to rather



than an economically superior capital budgeting option to which they had a neutral affec-tive reaction.3

Finally, we could have a situation where the positive influence of positive affect onlower competence sources offsets auditors’ more negative judgments for lower competencesources, such that they view higher and lower competence source similarly. Positive inter-personal affect toward a lower competence client could reduce auditors’ assessments ofinventory obsolescence to the level of a higher competence client. A priori, it is difficult topredict the extent a positive affect heuristic offsets a source credibility effect. Thus, whilesome interaction effect is expected, the nature of the interaction is unknown. The follow-ing hypothesis is proposed.

Hypothesis 2. Client competence will interact with positive interpersonal affect towardthe client to influence auditors’ assessments of inventory obsolescence and workpaperdocumentation.

3. Method

Participants

One hundred seventy-four auditors from large and regional public accounting firms inthe United States participated in the study. Of the participants, 71.3 percent were atthe rank of staff and associates, while 28.7 percent were senior associates and seniors.The data were collected during continuing education and firm training classes. Wechoose primarily audit staff and associates as participants because auditors at theseranks often have preliminary interactions with clients when conducting inquiry duringthe audit planning stage (Abdolmohammadi 1999). In addition, Bhattacharjee andMoreno (2002) report that lower rank auditors were more influenced by affective reac-tions towards a client than higher rank auditors. All participants were randomlyassigned to one of six experimental groups that were created by crossing three levels ofinterpersonal affect toward client management (Negative, Positive, and Neutral) withtwo levels of client competence (Higher and Lower). The participants had an averageof 16.9 months of auditing experience and there were no significant differences in theexperience level between the six experimental groups (F = 0.958; p = 0.445).4 In addi-tion, auditors had a mean familiarity with inventory accounting issues of 3.47 (1 =not very familiar to 7 = very familiar), with no significant differences in the level offamiliarity with inventory issues between the six experimental groups (F = 1.273; p =0.278).

Experimental task and procedures

Participants were asked to assume the role of an auditor assessing the potential obsoles-cence of a client’s inventory during preliminary audit planning. Auditors received extensive

3. To examine whether affect overshadows cognition, these prior studies compare a positive affect ⁄ economi-

cally inferior alternative to a neutral affect ⁄ economically superior alternative. In our study, because posi-

tive affect is not predicted to influence auditors’ judgments in the higher competence condition, this

condition is expected to behave like a neutral affect higher competence condition. As a result, our higher

competence positive affect condition is very similar to the experimental conditions in prior research which

associated neutral affect with an economically superior alternative. We are not aware of any other study

that looks at the boundaries of affect as done in our study and therefore would have experimental condi-

tions exactly like our conditions — positive affect ⁄ lower competence (i.e., inferior cognitive evaluation)

versus positive affect ⁄ higher competence (i.e., superior cognitive evaluation) — where the positive affect ⁄higher competence (i.e., superior cognitive evaluation) condition behaves like a neutral affect condition.

4. Two-tailed p-values are reported unless otherwise stated. One-tailed values are reported for directional

predictions.



company background information and a summary of unaudited financial information forthe year. The information indicated that the client’s internal controls were assessed asgood to strong in prior and current years and that management has been and will continueto be forthcoming with all relevant information pertaining to all audit issues. This infor-mation also indicated that the auditing firm had never had any disputes with the clientover financial disclosures or accounting principles applied, and that the firm had issued aclean audit opinion to the client in each of the last three years. Overall, the client back-ground information was indicative of a successful client with whom the auditors have hadno prior problems.

Next, all auditors were told that as part of their planning work they have had severaldiscussions with other audit team members and the client’s assistant controller and weregiven narratives of these discussions. These narratives were written in the first-personvoice, and encouraged the auditors to view them as actual interactions with client manage-ment and audit team members.5 The narratives provided general client information andinformation related to the inventory obsolescence issue. In addition, the discussion narra-tives were used to manipulate the competence of the client management as higher or lowerand to create a positive, negative, or neutral interpersonal affect toward the clientmanagement.

The inventory obsolescence information indicated that the client’s competition was inthe process of producing and marketing a technologically superior product that couldmake the client’s product obsolete. The narratives then included items indicating high andlow risk of obsolescence which both supported and refuted the existence of inventoryobsolescence in the current year.6 We use a subjective inventory obsolescence task that hasbeen used in prior research (see Anderson, Jennings, Lowe, and Reckers 1997) becauseinformation provided by entity management is particularly relevant to the audit ofaccounts that are subjective.

The narratives also contained information on the competence of the assistant control-ler. In the higher source competence conditions, the narratives showed the assistant con-troller to have significant industry experience, strong accounting skills, and a strongreputation in the industry. In the lower competence conditions, the narratives showed theassistant controller to have no previous related industry experience, minimal accountingexperience, and as yet to develop a reputation in the industry. The competence manipula-tion highlighted aspects of client competence that have been viewed as important by audi-tors in prior research (e.g., Hirst 1994).

Participants in the affect conditions received additional paragraphs of informationthat were intended to elicit an interpersonal affective reaction toward the client’s assis-tant controller. In the negative affect condition, the narratives of fellow audit teammembers indicated that the client’s assistant controller was quite arrogant about the cli-ent’s business success and was overall unpleasant to interact with because of his atti-tude of superiority. The narratives of the assistant controller corroborated the opinionsof the audit team members and clearly showed the person to be condescending andarrogant. In the positive affect condition, the additional paragraphs of informationwere intended to elicit a positive interpersonal affective reaction towards the clientmanagement. The narratives of fellow audit team members indicated that the assistantcontroller was humble about the client’s business success and was overall pleasant to

5. The use of narratives is consistent with prior studies that have provided written narratives to document

discussions with various client management (see, e.g., Koonce 1992; Koonce and Phillips 1996; Bhatta-

charjee and Moreno 2002).

6. The inventory obsolescence task contained five unique items supporting the existence of obsolescence risk

and five unique items discounting the existence of obsolescence risk.



interact with because of his sincere attitude. The narratives of the assistant controllercorroborated the opinions of the audit team members and clearly showed him to bepleasant and humble. Participants in the no affect conditions received no affectiveinformation on the client.

It must be noted that the affect narratives did not provide any information that couldincrease or decrease the risk associated with the audit, nor did they portray the client’smanagement to be untrustworthy or having lack of objectivity (as will be confirmed in themanipulation check). For example, although the narratives in the negative affect condi-tions were intended to show that a member of the client’s management team was arrogant,they also portrayed him to be truthful and forthcoming with all information. Similarly,the narratives in the positive affect conditions were intended to portray the assistant con-troller as humble yet truthful and forthcoming with all information. Our intention was tocreate an experimental situation where the affective information was completely irrelevantto the audit judgment that the participants were required to make and were based only onpersonality characteristics.7

After reading the background information and narratives, the auditors were told thatthe client’s reporting preference for this year was no write-down of inventory and no rele-vant disclosures in the financial statements. The auditors were then asked to make a preli-minary assessment of the client’s potential inventory obsolescence by indicating what theybelieve was the likelihood the client may have an obsolescence problem (0 = very unlikelyto 100 = very likely). Auditors were then asked to indicate the likelihood that they mayrecommend to their audit team supervisor that the client write down their inventory (0 =very unlikely to 100 = very likely). Next, auditors were asked to complete an audit plan-ning memorandum by documenting the evidence they considered when arriving at theirpreliminary inventory obsolescence assessment.

The auditors concluded by responding to manipulation check, demographic, and mem-ory recognition questions. Four questions had participants rate the extent to which theyliked, were frustrated, were happy, and were irritated with the attitude of the client’s assis-tant controller (1 = strongly disagree, 9 = strongly agree). The source competence manip-ulation check asked auditors to rate the extent to which participants felt the assistantcontroller was a competent and a reliable source of information (1 = strongly disagree,9 = strongly agree). In addition, participants were asked to rate the extent to which theyfound the assistant controller to be a trustworthy and objective source of information(1 = strongly disagree, 9 = strongly agree). The demographic questions addressed monthsof audit experience, rank, gender, and auditors’ familiarity with inventory accountingissues.

7. The irrelevant affect manipulation was adapted from Bhattacharjee and Moreno 2002, where it was previ-

ously pretested on nine auditors (i.e., two audit partners, one senior manager, and six seniors). The pretest

participants indicated that the information provided in the case was realistic and typical of information

that they would encounter during the audit of inventory and that the narratives were realistic depictions

of discussions with audit clients. The pretest also ensured that the affect was manipulated through risk-

irrelevant attributes of the client management’s interpersonal behavior, holding constant all other risk fac-

tors. This was done by asking the pretest participants to rate the level of client risk associated with this cli-

ent for each version of the instrument and to list factors that most significantly influenced their

assessments. Auditors were also asked to list any other risk factors associated with the client besides the

inventory obsolescence issue to ensure that the affective information was not relevant when making the

audit judgment. Each of the pretest auditors were then debriefed by one of the researchers about their

responses. Based upon the pretest responses, some of the case information was revised to ensure that the

goals of the study were met. Subsequent pretests further confirmed that the case materials met the goals

of the study.



4. Results

Manipulation check

Table 1 reports the results of the manipulation check variables gathered at the end of theexperimental instrument. When comparing across the affect conditions, the likability rat-ings in the Positive Affect–Higher Competence condition (mean = 6.78) were significantlyhigher than the Negative Affect–Higher Competence condition (mean = 2.90) [t = 7.51,p = 0.001, one-tailed] and both were significantly different than the Neutral Affect–HigherCompetence group (mean = 5.96; all ps < 0.04, one-tailed). Participants’ ratings of clientlikeability were also higher in the Positive Affect–Lower Competence group (mean =6.70) than the Negative Affect–Lower Competence group (mean = 2.11) [t = 8.91, p =0.001, one-tailed] and both were different than the Neutral Affect–Lower Competencegroup (mean = 5.61; all ps < 0.02, one-tailed).

Similar results were found for the ratings of frustration, happiness, and irritation.As is evident from the comparisons presented in Table 1, significant differences wereobserved between the positive affect and the negative affect groups in both the highcompetence and low competence conditions (all ps < 0.05, one-tailed) for these vari-ables. The neutral affect groups were broadly in between the positive and negative affectconditions for each of the ratings.8 Taken together, these results confirm that auditorswho received the negative affective information were more frustrated and irritated withthe client management, and had lower likability and happiness ratings than auditors inthe positive affect groups.9

The source competence manipulation checks indicate that auditors’ ratings of clientcompetence and reliability were significantly higher in the Negative Affect–Higher Compe-tence group (mean = 6.16; mean = 6.23, respectively) than the Negative Affect–LowerCompetence group (mean = 5.15; mean = 5.15, respectively) [t = 1.92, p = 0.029; t =2.11, p = 0.019, respectively, one-tailed]. Similarly, competence and reliability ratings weresignificantly higher in the Positive Affect–Higher Competence group (mean = 6.53; mean =5.87, respectively) than the Positive Affect–Lower Competence group (mean = 5.06; mean= 4.93, respectively) [t = 3.32, p = 0.001; t = 2.01, p = 0.024, respectively, one-tailed].Competence and reliability ratings were significantly higher in the Neutral Affect–HigherCompetence group (mean = 6.88; mean = 5.68, respectively) than the Neutral Affect–Lower Competence group (mean = 4.32; mean = 4.70, respectively) [t = 6.45, p =0.001; t = 2.25, p = 0.014, respectively, one-tailed].10 These results demonstrate thatthe competence manipulation was successful as auditors in the higher competence groups

8. While no theoretical differences are expected, we also compared the affect ratings between the lower and

higher competence groups for each affect variable. There were no significant differences in the likability,

frustration, happiness, and irritation ratings between the lower and the higher competence groups in the

positive affect condition, the negative affect condition, and the neutral affect condition (all t-test ps >

0.05).

9. The Cronbach’s alpha indicating the reliability of the positive affect measures (likability and happiness)

was 0.906 and the negative affect measures (frustration and irritation) was 0.926. The generally agreed

lower limit for Cronbach’s alpha is 0.70 (Robinson et al.1991). Given the high reliability, additional analy-

ses were performed by aggregating the affect variables into a composite measure. We obtain results that

mirror the findings of the individual affect scores reported in the text, further verifying the success of the

affect manipulation.

10. While no theoretical differences are expected, we also compared the competence and reliability ratings

between the three affect groups within the higher competence condition and within the lower competence

condition. In the higher competence condition, the competence and reliability ratings were not significantly

different between the positive affect, negative affect, and neutral affect conditions (all ps > 0.268). In the

lower competence condition, the competence and reliability ratings were not significantly different between

the positive affect, negative affect, and neutral affect groups (all ps > 0.333).



TABLE

1

Manipulationcheckvariables:Means(standard

deviations)

andanalysisofvariance

Variables

PositiveAffect1

NegativeAffect

NeutralAffect

F-ratio

p-value

Higher

client

competence

(n=

32)

Lower

client

competence

(n=

30)

Higher

client

competence

(n=

30)

Lower

client

competence

(n=

26)

Higher

client

competence

(n=

25)

Lower

client

competence

(n=

31)

Likeclientmanagem

ent(1

=strongly

disagreeto

9=

strongly

agree)

6.78a(1.86)

6.70a(2.13)

2.90b(2.20)

2.11b(1.63)

5.96c(1.61)

5.61c(1.92)

30.85

0.001

Frustratedwithclientmanagem

ent

(1=

strongly

disagreeto

9=

strongly

agree)

3.40a(2.04)

3.26a(2.13)

6.91b(1.84)

7.57b(1.85)

4.00a,c(1.73)

4.22c(2.10)

26.13

0.001

Happywithclientmanagem

ent

(1=

strongly

disagreeto

9=

strongly

agree)

6.40a(1.86)

6.53a(2.27)

2.53b(1.54)

2.03b(1.14)

6.20a,c(1.65)

5.33c(2.12)

34.90

0.001

Irritatedwithclientmanagem

ent

(1=

strongly

disagreeto

9=

strongly

agree)

3.53a(2.04)

3.26a(2.18)

6.83b(1.93)

7.51b(1.81)

3.56a(1.78)

3.51a(1.72)

28.21

0.001

Clientcompetentsourceofinform

ation

(1=

strongly

disagreeto

9=

strongly

agree)

6.53a(1.58)

5.06b(1.87)

6.16a(1.96)

5.15b(1.95)

6.88a(1.23)

4.32b(1.64)

9.44

0.000

Clientreliable

sourceofinform

ation

(1=

strongly

disagreeto

9=

strongly

agree)

5.87a(1.66)

4.93b(2.01)

6.23a(2.01)

5.15b(1.78)

5.68a(1.57)

4.70b(1.61)

3.29

0.007

Clientobjectivesourceofinform

ation

(1=

strongly

disagreeto

9=

strongly

agree)

3.81a(1.94)

3.66a(2.26)

3.60a(1.75)

3.57a(1.79)

3.60a(1.95)

3.70a(2.07)

0.06

0.998

Clienttrustworthysourceof

inform

ation(1

=strongly

disagree

to9=

strongly

agree)

5.18a(1.76)

5.26a(1.99)

4.66a(1.95)

4.96a(1.68)

5.29a(1.48)

4.72a(1.85)

0.66

0.647

Note:

1Entrieswithin

arow

withdifferentsuperscriptlettersare

significantlydifferentatp<

0.05(one-tailed).



perceived the client management to be more competent and reliable than auditors in thelower competence groups.11

Table 1 also indicates that participants in all the experimental groups rated the clientmanagement as an equally trustworthy (all ps > 0.05) and an equally objective (all ps >0.05) source of information (one-tailed). Because the affective information provided wasirrelevant to the task at hand, as expected it had no impact on auditors’ assessments ofthe trustworthiness and objectivity of the information provided by client managementacross the conditions.

Likelihood of inventory obsolescence

After reading the case information, each auditor made an assessment of what they believedwas the likelihood the client may have an obsolescence problem (0 = very unlikely to 100 =very likely). Panel A of Table 2 reports the mean assessment of the likelihood of anobsolescence problem for the six experimental groups. Panel B reports a 2 · 3 analysis ofvariance (ANOVA) with interpersonal affect towards the client (negative, positive, andneutral) and client competence (higher and lower competence) as the factors.

The ANOVA results indicate a significant interaction between client competenceand interpersonal affect towards the client (F = 3.83, p = 0.023) (see Figure 1).Comparisons of t-tests for the negative affect conditions are reported in panel C. Aspredicted by Hypothesis 1(a), the inventory obsolescence ratings of the NegativeAffect–Lower Competence group (mean = 75.76) are significantly higher than that ofthe Negative Affect–Higher Competence group (mean = 62.83) [t = )3.25, p = 0.001,one-tailed]. When auditors have a negative affective reaction and the source competenceis lower, auditors are influenced by heuristic cues like their interpersonal emotionsresulting in a higher assessment of the likelihood of inventory obsolescence. To gaininsight into the significance of these results, we examine the two neutral groups. Thelikelihood of inventory obsolescence was rated higher in the Neutral Affect–LowerCompetence condition (mean = 67.41) than the Neutral Affect–Higher Competencecondition (mean = 60.60) at the p = 0.098 level, one-tailed (t = )1.30, p = 0.098).Auditors considered source competence in their likelihood judgments in the neutral con-dition. However, as we observe, this effect widens when we compare the two negativeaffect conditions.

This is further illustrated by comparing results of the negative affect versus the neu-tral affect groups as proposed by Hypothesis 1(b). The likelihood ratings of the Nega-tive Affect–Lower Competence condition (mean = 75.76) are significantly higher thanthe ratings of the Neutral Affect–Lower Competence condition (mean = 67.41) [t = 2.01,

11. We gathered additional data from 7 audit partners and one senior audit manager (average auditing experi-

ence = 22.8 years) to verify that the lower competence manipulation did not imply a significant deficiency

under Sarbanes-Oxley Act (SOX) 404 and to determine whether a client can have strong internal controls

with the assistant controller’s experience level as described in the lower competence scenarios. The audit

partners and the senior manager were first presented with the client background information. They then

read the narratives contained in the lower competence positive affect scenario and the lower competence

negative affect scenario. Thereafter, they provided qualitative responses to two questions. When asked if,

based on the client information provided in the two scenarios, they thought there were any items that

would imply a significant deficiency under SOX 404, the audit partners and the senior manager indicated

that the information provided in the scenarios would not imply a significant deficiency. When asked if they

thought it is likely that a client can have strong internal controls with an assistant controller having the

accounting background and industry experience described in the scenarios, the auditors agreed that it was

indeed possible for a client to have strong internal controls in these scenarios. Taken together, these results

indicate that it is realistic to convey information about strong controls even with a less experienced assis-

tant controller and that the information in the low client competence condition does not indicate a signifi-

cant internal control deficiency.



p = 0.024, one-tailed], while the ratings of the Negative Affect–Higher Competencecondition (mean = 62.83) are not statistically different from the Neutral Affect–HigherCompetence condition (mean = 60.60) (p > 0.666). Because the only differencebetween the Negative Affect–Lower Competence and the Neutral Affect–Lower Compe-tence conditions is the presence of negative affect, this confirms that the widening of

TABLE 2

Impact of client competence and interpersonal affect on assessing the likelihood of an inventory

obsolescence problem

Panel A: Means (standard deviations) by group

Variables

Positive Affect Negative Affect Neutral Affect

Higherclient

competence

Lowerclient

competence

Higherclient

competence

Lowerclient

competence

Higherclient

competence

Lowerclient

competence

Likelihood that

client has an

inventory

obsolescence

problem

(0 = very unlikely;

100 = very likely)

62.78

(21.78)

57.00

(19.98)

62.83

(17.30)

75.76

(12.30)

60.60

(20.27)

67.41

(18.70)

Panel B: Analysis of variance

Source of variation SS df F-ratio p-value

Interpersonal affect 2601.78 2 3.69 0.027

Client competence 935.94 1 2.66 0.105

Interpersonal affect · client competence 2700.24 2 3.83 0.023

Panel C: t-Test comparisons — negative affect groups

Comparisons t-statistic p-value1

Negative Affect–Higher Competence vs. Negative Affect–Lower Competence )3.25 0.001*

Negative Affect–Higher Competence vs. Neutral Affect–Higher Competence 0.434 0.666

Negative Affect–Lower Competence vs. Neutral Affect–Lower Competence 2.01 0.024*

Panel D: t-Test comparisons — positive affect groups

Comparisons t-statistic p-value

Positive Affect–Higher Competence vs. Positive Affect–Lower Competence 1.09 0.280

Positive Affect–Higher Competence vs. Neutral Affect–Higher Competence 0.39 0.698

Positive Affect–Lower Competence vs. Neutral Affect–Lower Competence )2.10 0.020*

Notes:

1 t-tests marked with an asterisk (*) indicate one-tailed tests due to directional hypotheses. All other

t-tests are two-tailed.



the inventory obsolescence ratings in the negative affect condition was due to theimpact of negative interpersonal affect in the lower competence condition. These find-ings have efficiency implications since higher risk assessments may lead to additionalaudit testing.

Hypothesis 2 examines auditors’ inventory obsolescence judgments in the positiveaffect conditions (panel D of Table 2). Auditors’ ratings of the likelihood of an inventoryobsolescence problem in the Positive Affect–Lower Competence group (mean = 57.00) arestatistically similar to that of the Positive Affect–Higher Competence group (mean =62.78; t = 1.09, p = 0.280). These results have potential effectiveness implications becausepositive affect resulted in auditors being equally persuaded by information from a lowercompetence source and a higher competence source. Further insight into the potentialeffectiveness implications is gained by comparing the positive affect groups with therespective neutral affect groups. We observe that the ratings of the Positive Affect–HigherCompetence group (mean = 62.78) are statistically similar to those of the Neutral Affect–Higher Competence group (mean = 60.60; t = 0.39, p = 0.698). However, the PositiveAffect–Lower Competence group (mean = 57.00) rated the likelihood of an inventory

Figure 1 Interaction between client source competence and interpersonal affect toward the clienton inventory judgments



obsolescence problem as lower than the Neutral Affect–Lower Competence group (mean =67.41; t = )2.10, p = 0.020, one-tailed).

Additional comparisons further demonstrate that affect impacts auditors’ judgments inthe lower competence conditions but not in the higher competence conditions. In thehigher competence condition, auditors’ ratings of the likelihood of an inventory obsoles-cence problem are all statistically similar (all ps > 0.666). In the lower competence groups,the ratings of inventory obsolescence in the positive affect group are significantly lowerthat the negative affect group (p = 0.001, one-tailed), and both groups are different fromthe neutral group.12

Auditors’ documentation of evidence

Auditors were asked to complete an audit planning memorandum by documenting theevidence they considered when arriving at their preliminary inventory obsolescenceassessment. Two of the researchers independently reviewed the evidence listed by theauditors and coded each documented item as either indicating an increased risk of obso-lescence (negative item), a decreased risk of obsolescence (positive item), or neutral. Theagreement level between the two coders was 89.2 percent (Kappa = 0.825, p < 0.001).All differences were reconciled. We calculated the percentage of the total items docu-mented that were positive and negative. Then the percentage of positive evidence itemsdocumented minus the percentage of negative items documented was computed to deter-mine the type of evidence items, in net, auditors used when arriving at their inventoryobsolescence assessment. A significant negative number would indicate that, in net, agreater percentage of negative evidence items were documented than positive evidenceitems, while a significant positive number would indicate that, in net, a greater percent-age of positive evidence items were documented than negative evidence items. A numberclose to zero would indicate that auditors documented an equal number of positive andnegative items.

Panel A of Table 3 reports the mean percentage of positive and negative items docu-mented, and the mean difference between the percentage positive and negative items docu-mented for the six experimental groups. Panel B shows a 2 · 3 ANOVA for the differencebetween the percentage positive and negative items documented with interpersonal affecttoward the client (positive, negative, and neutral) and client competence (higher and lowercompetence) as the factors. The ANOVA results in panel B of Table 3 indicate a signifi-cant interaction between client competence and interpersonal affect (F = 3.39, p =0.036).

The t-tests reported in panel C of Table 3 indicate that, in the negative affect groups,the mean percentage of positive minus negative items documented by the Negative Affect–Lower Competence condition (mean = )0.35) was significantly lower than the NegativeAffect–Higher Competence condition (mean = )0.02; p = 0.046, one-tailed). This

12. Auditors were also asked to rate the likelihood that they would recommend to their audit team supervisor

that the client write down its inventory (0 = very unlikely to 100 = very likely). We ran a regression to

determine if the impact of client competence and affect on the likelihood of recommending a write-down

to an audit team supervisor is direct or indirect through the assessment of the likelihood of an obsoles-

cence problem. For the regression, the likelihood of recommending a write-down to an audit team supervi-

sor was specified as the dependent variable. The main independent variables were client competence,

interpersonal affect, an interaction between competence and interpersonal affect, and the likelihood the

client may have an obsolescence problem. The results indicate that the overall regression is significant

(F = 22.88, p = 0.001; adjusted R2 = 0.504). In addition, only the coefficient for the likelihood of an

obsolescence problem variable is statistically significant at the p < 0.001 level (t = 13.05) with a positive

coefficient (0.735). This confirms that the impact of client competence and interpersonal affect on the like-

lihood of recommending a write-down to an audit team supervisor is indirect through the assessment of

the client’s potential inventory obsolescence problem.



TABLE 3

Impact of client competence and interpersonal affect on workpaper documentation

Panel A: Means (standard deviations) by group

Variables

Positive Affect Negative Affect Neutral Affect

Higherclient

competence

Lowerclient

competence

Higherclient

competence

Lowerclient

competence

Higherclient

competence

Lowerclient

competence

Percentage positive

items documented10.42 0.61 0.49 0.32 0.41 0.49

Percentage negative

items documented20.56 0.38 0.51 0.67 0.58 0.50

Difference between

the percentage

positive and negative

items documented

)0.14 (0.73) 0.23 (0.59) )0.02 (0.75) )0.35 (0.56) )0.17 (0.74) )0.01 (0.73)

Panel B: Analysis of variance

Source of variation SS df F-ratio p-value

Interpersonal affect 1.38 2 1.43 0.241

Client competence 0.16 1 0.33 0.563

Interpersonal affect · client competence 3.26 2 3.39 0.036

Panel C: t-test comparisons — negative affect groups

Comparisons t-statistic p-value3

Negative Affect–Higher Competence vs. Negative Affect–Lower Competence 1.72 0.046*

Negative Affect–Higher Competence vs. Neutral Affect–Higher Competence 0.657 0.514

Negative Affect–Lower Competence vs. Neutral Affect–Lower Competence )1.814 0.038*

Panel D: t-test comparisons — positive affect groups

Comparisons t-statistic p-value

Positive Affect–Higher Competence vs. Positive Affect–Lower Competence )2.091 0.042

Positive Affect–Higher Competence vs. Neutral Affect–Higher Competence 0.10 0.918

Positive Affect–Lower Competence vs. Neutral Affect–Lower Competence 1.36 0.089*

Notes:

1 The percentage of the total items documented by auditors that were positive (i.e., indicating a

decreased risk of inventory obsolescence).

2 The percentage of the total items documented by auditors that were negative (i.e., indicating an

increased risk of inventory obsolescence).

3 t-tests marked with an asterisk (*) indicate one-tailed tests due to directional hypotheses. All other

t-tests are two-tailed.



provides support for Hypothesis 1(c). We further observe that, while auditors in the Nega-tive Affect–Lower Competence group (mean = )0.35), in net, documented more negativeitems and this was significantly lower than zero (t = )3.02, p = 0.003, one-tailed), theNegative Affect–Higher Competence (mean = )0.02) group’s net documentation was notstatistically different from zero (t = )0.159, p = 0.874). As predicted by Hypothesis 1(d),no differences were observed in the net documentation between the Negative Affect–Higher Competence (mean = )0.02) and the Neutral Affect–Higher Competence (mean =)0.17) groups (p > 0.514). However, the net documentation of the Negative Affect–LowerCompetence group (mean = )0.35) was significantly lower than that of the NeutralAffect–Lower Competence group (mean = )0.02; p = 0.038, one-tailed) supportingHypothesis 1(d).

Recall that Hypothesis 2 examines auditors’ inventory obsolescence judgments inthe positive affect conditions. Panel D of Table 3 indicates that the mean percentagepositive minus negative items documented by the Positive Affect–Lower Competencegroup (mean = 0.23) is significantly higher than the Positive Affect–Higher Compe-tence condition (mean = )0.14; t = )2.09, p = 0.042). In fact, the Positive Affect–Lower Competence group auditors (mean = 0.23) documented, in net, more positiveitems and this was significantly higher than zero (t = 1.98, p = 0.029, one-tailed),while the net documentation of the Positive Affect–Higher Competence condition (mean =)0.14) was not statistically different from zero (t = )1.06, p = 0.298). This indicatesthat the lower competence group documented information consistent with their positiveaffect. Alternatively, auditors who received information from a higher competencesource documented both positive and negative evidence items. Panel D of Table 3 alsoindicates that there were no differences in the net documentation between the PositiveAffect–Higher Competence (mean = )0.14) condition and the Neutral Affect–HigherCompetence (mean = )0.17) group (p > 0.918). However, the net documentation ofthe Positive Affect–Lower Competence group (mean = 0.23) was higher than that ofthe Neutral Affect–Lower Competence group (mean = )0.02) at the p = 0.089 level(one-tailed).

Evidence of systematic versus heuristic processing

We compared auditors’ documentation within the higher competence and within the lowercompetence conditions to determine if client competence influences auditors’ informationprocessing. Auditors’ documentation was not influenced by interpersonal affect in thehigher competence conditions since there were no differences in the mean percentage posi-tive minus negative items documented between the Positive Affect–Higher Competence(mean = )0.14), Negative Affect–Higher Competence (mean = )0.02), and the NeutralAffect–Higher Competence (mean = )0.17) groups (all ps > 0.49). As reported earlier,the Positive Affect–Higher Competence and the Negative Affect–Higher Competencegroups’ net documentation were not statistically different from zero. This indicates thatauditors in the higher competence conditions processed systematically and documented ina similar manner as they considered both positive and negative evidence items. In thelower competence groups, the net items documented in the Positive Affect–Lower Compe-tence group (mean = 0.23) is significantly higher than the net documentation of the Nega-tive Affect–Lower Competence group (mean = )0.35; p = 0.001, one-tailed). As reportedearlier, in the lower competence conditions, the positive affect and the negative affectgroups were different from the neutral groups. In addition, the net documentation of thePositive Affect–Lower Competence group was significantly higher than zero, while the netdocumentation of the Negative Affect–Lower Competence group was significantly lower



than zero. Thus, the lower competence groups processed heuristically and documentedinformation consistent with their affective reactions.13,14

Memory recognition of case items

Auditors also responded to a memory recognition task at the end of the experiment. Thistask listed 12 items based on the case materials. Six of the recognition items were itemsactually present in the case materials. Another six items were not present — three eachwere chosen by selecting information items from the case that indicated low (high) risk ofinventory obsolescence and changing them to items indicating high (low) risk of inventoryobsolescence. Participants were asked to indicate whether or not they believed each itemwas actually included in the case materials. The results indicate that, on average, auditorscorrectly recalled 80 percent of the information items listed. We ran separate ANOVAsfor auditors’ correct recognition of items present in the case materials and items not pres-ent in the case materials with client competence and interpersonal affect toward the clientas the factors. The results indicate that neither the main effect for client competence orinterpersonal affect towards the client nor the interaction were significant for the correctrecognition of items present in the case materials and items not present in the case materi-als (all ps > 0.144).15 Given no significant differences in recognition across experimentalconditions, and the overall high accuracy, these data demonstrate that all conditionsequally comprehended the data in the case materials.16

5. Conclusion

This study provides an understanding of when previously unexplored source factors thatexist in the audit environment can influence the extent to which known source variables likecompetence will have a greater or a lesser influence on audit judgments. A negative affectivereaction toward a lower competence client led to higher obsolescence ratings and the docu-mentation of more items indicative of increased obsolescence. A positive affective reactiontoward a lower competence client led to similar inventory obsolescence ratings and the doc-umentation of more items indicative of decreased obsolescence than a higher competencesource. Because the judgments and workpaper documentation of lower rank auditors are

13. The number of items documented was also analyzed. In the positive affect condition, the average number

of positive (negative) items documented was: Positive Affect–Higher Competence 2.39 (2.71) and Positive

Affect–Lower Competence 4.03 (2.12). In the negative affect condition, the average number of positive

(negative) items documented was: Negative Affect–Higher Competence 2.03 (1.96), and Negative Affect–

Lower Competence 2.00 (4.04). In the neutral affect condition, the average number of positive (negative)

items documented was: Neutral Affect–Higher Competence 2.45 (3.09) and Neutral Affect–Lower Compe-

tence 1.78 (2.66). We analyzed the impact of client competence and interpersonal affect on the number of

items documented and the findings are the same as the proportion results reported in the text (Table 3).

We report the proportion results in the text because it provides an intuitive indicator of the relative

amount of positive and negative items documented. This allows for a more effective test of whether audi-

tors document more affect-consistent information depending upon the competence of the source.

14. We analyzed the likelihood judgments and workpaper documentation with rank and months of audit

experience as covariates and the results are the same as those reported in the main results.

15. This result, along with the overall high accuracy, is not consistent with the argument that participants in

the positive affect condition exert more effort ⁄ attention than those in the negative affect condition. Prior

psychology research does not support processing differences between positive and negative affect (Forgas

2000; Schwarz 2001; Bless 2001). In fact, some tangentially related affect research supports the opposite.

Research on moods has found that negative moods lead to more systematic processing and positive moods

lead to more heuristic processing (Bless 2000; Forgas 1995; Cianci and Bierstaker 2009).

16. A separate analysis was run within the six recognition items that were not present in the case. For the set

of three items that were changed from low to high risk and for the set of three items that were changed

from high to low risk, there were no significant differences between any of the experimental conditions in

auditors’ correct recognition that these items were not present in the case materials (all ps > 0.05).



used as input by higher rank auditors for subsequent judgments, these results show thepotential impact on the audit. These findings also extend accounting and psychologyresearch by lending insight into the boundaries of affect’s role in accounting decision mak-ing.

This study has implications for the audit profession by demonstrating that auditors’judgments and workpaper documentation can be influenced by their interpersonal affectivereactions to the client under various source competence conditions. Inappropriate documen-tation has important implications in the current audit environment. PCAOB standardsrequire that auditors now document all of their judgments in such detail that an experiencedauditor reviewing the audit could reconstruct every auditing judgment (PCAOB 2004).Therefore, the ramifications for inappropriate workpaper documentation from auditors’insensitivity to source competence resulting from interpersonal affect could be significant.

These results suggest that training auditors on how their interpersonal interactionswith their audit clients can influence their judgments may be warranted. Training on emo-tional competence (i.e., the ability to monitor, use, and manage information from one’sown and others’ emotions) is widespread in other professions. For example, law schoolshave recognized the importance of training lawyers to be more sensitive to the signs ofemotions in others, and emotional competencies have become a recent focus area in medi-cal education as a predictor of success (Carr 2009; Reilly 2005). These skills are also beingconsidered by companies during their hiring process. While companies have offered soft-skills training to employees for years, consultants and human resource professionals arenow promoting emotional competencies in employees (Caudron 1999; Laabs 1999). Execu-tive training seminars that focus exclusively on emotions in business and negotiations haveemerged and the development of these skills have been incorporated in MBA curriculums.While emotions are fundamental to work, learning how to manage emotions is critical(Damasio 1994). Such training could sensitize auditors to recognize and manage the differ-ent affective reactions they may experience when dealing with clients who may also differon other dimensions such as source competence.

As with all experimental research, this study has limitations which should be consid-ered when evaluating the results. While the case in this study tried to capture some of therichness of auditor–client interactions, the scenarios used were more simplistic than situa-tions that auditors encounter in practice. However, we hoped that auditors would viewthese scenarios as abstractions of situations that they typically encounter and respond asthey would in practice. Some limitations also provide opportunities for future research. Itis important to consider that the current study did not incorporate the review process andfuture research could examine how the review process may impact the interplay of sourcecompetence and interpersonal affect on persuasion in auditing. Future research that exam-ines how interpersonal affect combines with other source reliability characteristics couldlend insight into auditor performance. Research on previously underexplored factors thatoperate within the auditing environment and impact auditor judgment is imperative giventhe increased public scrutiny on auditor quality.

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The Interplay of Interpersonal Affect and Source Reliability on Auditors’ Inventory Judgments*

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