THE EFFECTS OF SOURCE-COMPETENCE INFORMATION AND ITS TIMING ON AUDITORS PERFORMANCE OF ANALYTICAL PROCEDURES

Evaluating the reliability of audit evidence received through manageme nt inquiry is an important aspect of auditing. Independently verifying information from management is often difficult, since increasingly fi nancial statements involve ''soft'' information (e.g., environmental l iability estimates). The objectives of this paper are to provide insig ht into how auditors performing analytical procedures evaluate the rel iability of management explanations for unexpected fluctuations and to identify directions for future research. Based on research from psych ology, auditors' assessments of the reliability of evidence were expec ted to be sensitive to the manager's competence and to when the manage r's competence became known. With regard to timing, it was expected th at auditors' assessments would be more sensitive to the manager's comp etence when it was known before receiving the manager's explanation as compared to after. As expected, the experimental results indicate tha t auditors who receive an explanation from a client manager judge it t o be more reliable when the client manager possesses high versus low c ompetence. However, contrary to expectations, auditors' judgments abou t the reliability of the client manager's explanation do not depend on when that competence information is received. While the study focused on the competence of client personnel, other factors could also affec t the auditor's assessment of client-provided evidence. The literature s on influence (Cialdini 1985), attribution (Eagly et al. 1978), and p ersuasion (Eagly and Chaiken 1984) offer useful perspectives for ident ifying these factors and how they might affect the auditor's assessmen ts of evidence from management. These perspectives are drawn on to ide ntify directions for future research. Such additional research is nece ssary to enhance understanding of the manner in which auditors evaluat e the reliability of evidence received through management inquiry.