The Impact of Hypothesis-Testing Strategies on Auditors' Use of Judgment Data

Auditors make numerous judgments in evaluating internal control, assessing audit risk, designing and implementing sampling plans, and appraising and reporting on uncertainties. Libby [1981] notes that auditors often explicitly or implicitly formulate hypotheses within these judgment tasks, and typically, alternative hypotheses are possible for any given judgment. After the hypothesis has been framed, the auditor searches for data to test it. In this paper I examine whether the hypothesis-testing strategies employed by auditors affect their search for, attention to, and use of judgment data. Snyder and Swann [1978] indicate that at least three such strategies might be employed. In one, the decision maker tends to search for evidence that confirms the hypothesis under scrutiny. For example, in evaluating the hypothesis that a target individual was an extrovert, the decision maker might recall or search for instances where the target behaved in an extroverted manner. Using this type of confirmatory strategy, the individual would be more inclined to accept the hypothesis if a number of hypothesis-confirming events are uncovered. A second strategy would be to search for disconfirming evidence (e.g., introverted behavior) when testing whether a target was an extrovert. If sufficient evidence is uncovered, the decision maker would be more prone to reject the extrovert hypothesis. Finally, the decision maker could invest equal