Primacy effects and the role of risk in auditor belief-revision processes

Numerous studies in the audit judgment literature provide evidence indicati ng that auditors can be susceptible to recency effects. This study extends the research by examining auditor susceptibility to primacy, an order effec t, which, like recency, can lead to suboptimal audit-planning decisions (se e Ashton and Ashton 1988) and yet, unlike recency, has received very little attention in the accounting literature. Specifically, the research investi gates whether primacy effects in auditor belief revisions are a conditional function of the level of inherent risk present in the audit environment (h igh/low) and the nature of the information contained in the latter portion of the information sequence (e.g., whether the information is positive or n egative with respect to the client's internal controls). The results, consistent with expectations, indicate that auditors are susce ptible to primacy effects when making likelihood of error and audit-hour pl anning judgments in settings that are relatively low in inherent risk, and such effects are due to less integration of late positive information in lo w- as compared to high-risk conditions. No evidence of primacy was found fo r either judgment when the inherent risk associated with the audit setting was high and, auditors did not differentially revise their beliefs across i nherent risk conditions for late negative information. The findings indicat e that primacy is essentially the result of insufficient integration of lat e positive information in low inherent risk settings, suggesting that prima cy may lead to overauditing and thus, an inefficient use of audit resources .