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The effect of information framing on the auditor's going concern evaluation
Abstract
The purpose of this dissertation is to investigate whether the framing effect proposed by prospect theory can affect the auditor's decision making process. Prospect theory, a descriptive theory of decision making, posits that the manner in which information is presented (framed) can influence individual decision making by affecting the reference point from which alternatives are evaluated. Alternatives are evaluated as gains or losses from that reference point and the decision maker's risk preference can shift when an alternative is perceived as a gain versus a loss. The audit decision context in which the framing effect is investigated is the auditor's decision regarding going concern modification of the audit report. In this context the auditor evaluates information from a variety of sources. Information that is framed in a positive or negative manner could potentially influence the reference frame from which alternatives are evaluated. Previous research has indicated that the auditor will consider consequences to the audit firm when making this decision. Therefore, another potential source of a framing effect is the manner in which the probability of occurrence of a specific outcome is presented. This study investigates the effect on the auditor's going concern modification decision of framing the information the auditor evaluates and framing the probability of resulting consequences. The hypothesis of this study was tested by administering a case to 100 auditors with a wide range of experience who practiced primarily in Midwestern states. The subjects, randomly assigned to positive and negative treatment groups, were asked to evaluate the viability of a hypothetical client and make a decision with respect to audit report modification. The results of this dissertation indicate that auditors are not immune to the framing effect posited by prospect theory. The implications of this finding and opportunities for future research are included in this dissertation.
Subject Area
Accounting
Recommended Citation
O'Clock, Priscilla Marie, "The effect of information framing on the auditor's going concern evaluation" (1991). ETD collection for University of Nebraska-Lincoln. AAI9129568.
https://digitalcommons.unl.edu/dissertations/AAI9129568